How to Get and Use Your First Credit Card
Getting your first credit card can be very exciting…and also very tempting. There's no question that having a credit card can make life more convenient. Plus, there are advantages that credit cards provide- one of the most important being helping you establish a good credit history. Your credit score and credit history strongly influence the terms and conditions of any loans you may apply for in the future. Consumers with higher credit scores generally receive lower interest rates and more favorable terms for any new loans. The bottom line is - the better your credit, the more money you will save over the life of your loan.
So now you are independent and looking to get your first credit card! Remember that having a credit card is a big responsibility. When you make a purchase with your card you are basically taking out a loan from the credit card lender. And that loan has to be repaid. Here are some ideas to think about when you are looking for your first credit card.
Choosing Your First Credit CardThere is a lot to know about credit and ignorance is definitely not bliss. Not knowing the facts can really cost you- both in your wallet and with your credit score. Take the time to familiarize yourself with how credit and credit cards work.
- Compare credit cards from different lenders - Look for a card that has good benefits which you will use. Good benefits can include promotional interest rates, no annual fee, low APR (annual percentage rate), air travel bonus miles, or credit points on purchases.
- Promotional interest rates - If this is offered, make sure you understand the terms and when the rate will expire.
- Fees and charges - Lenders are allowed to charge fees for practically everything. Look for disclosures about fees such as an annual fee, a late-payment fee, an over-limit fee, an account service charge, a cash advance fee, and other possible charges. Carefully compare different cards to find the best deal.
- Interest rates - Find out how the interest is calculated on purchases. Most cards have a grace period but make sure you know the interest rate and how it applies. Paying your balance in full each month will avoid costly interest charges.
Smart Tips for Credit Card Beginners
At the beginning of 2012 Americans owed more than $800 billion in credit card debt. The average household with more than one credit card owes approximately $15,000 in outstanding debt. The statistics certainly indicate that millions of people are drowning in credit card debt- and every one of them was once a first-time cardholder.A credit card can be a great financial tool when used responsibly. Here are some credit-savvy guidelines to using your first card:
- Keep a low credit limit in the beginning. Generally, $500-$1000 is sufficient for any first-time user. Many credit card companies will raise your credit limit after a certain amount of time as long as you have a perfect on-time payment record and keep a low balance.
- Never make a late payment. Late payments have a negative effect on your credit score. Plus you will have to pay late-payment fees which can run as high as $40.
- Pay off the entire balance each month. This is a great way to build a solid credit history. It also helps you avoid paying any interest charges.
- Put money aside for your payment. When you make a purchase with your card, deduct the amount from your checking account balance. When you receive your bill, the money will already be "set aside" for the full payment.
- Treat the card like cash. A good rule to follow is: if you can't afford to pay cash for something you probably can't afford it, period. Overspending is a serious risk when using a credit card. Don't fall victim to it.
- Don't take cash advances. Avoid cash advances if at all possible. The interest rates are usually very high and interest begins to accrue immediately.
- Make a budget and stick to it. It's nearly impossible to manage your finances without a budget. Keep a close watch on your spending and your bank account. Your credit card payments should never exceed 20% of your total monthly income.
Fraud ProtectionNo one likes to think about losing their card or having their credit card information stolen. Be sure to find out about the lender's security policies and fraud protection services. Here are some things you can do to protect yourself from unwanted charges and unauthorized use of your card:
- Sign your card as soon as you receive it.
- Never write down your pin and carry it with your card.
- Never give out your card number unless it is a merchant you know and trust and you initiated the call.
- Be cautious when using your card in public. (There are cases where people secretly took cell phone pictures of credit cards to obtain the numbers.)
- Save all your receipts and check them against your monthly billing statement. Notify your credit card company immediately if you notice a discrepancy.
- Report lost or stolen credit cards at once.