Getting your first credit card is super exciting. Finally, it’s an opportunity to start building some credit, and it’s also hugely useful when it comes to dealing with any emergencies that come your way–so there’s no need to call your parents for money if you somehow end up missing a flight back home and need some cash to book the next one. But using a credit card also has a ton of risks associated with it, such as thousands of dollars in possible debt, it can be nerve-wracking to make that first purchase, even if it’s only five bucks for an iced latte at your favorite cafe.
But there’s no need to panic. By following these tips, you’ll use your credit card responsibly–which means that it’ll help you out when you need it and you’ll be able to pay it back off on time:
1 Choose the right card
Before you even start swiping the plastic, you need to figure out which card is right for you. The first step to doing this, according to Citizens Advice, is understanding what you plan on using it for: “This could be to buy things online or on holiday, to pay your bills or to spread the cost of a purchase. However you choose to use your card, the key thing is whether you will be paying off what you owe every month or spreading repayments over a period.” Because if you’re paying off what you owe each month, the rate of interest doesn’t matter as much–while if you plan on paying a large purchase off over a big amount of time, you’ll want a lower-interest card.
Additionally, you’ll want to think about what kinds of rewards you want. For most students, for example, a cashback plan makes the most sense, because they’re usually budgeting so much already. To learn more about the best first credit cards, check out this list from The Balance. As of 2015, there were a total of 636 million cards being used from VISA, MasterCard, American Express, and Discover–so as you can imagine there are many to choose from.
2 Keep it to one card
Sure, it can be exciting to receive your first card–and once you’ve got one, why not apply for others? But, actually, according to Credit Donkey, “You shouldn’t rush to overload your wallet, though. Applying for multiple credit card offers within a relatively short time frame can actually hurt your credit score. Getting one card with a low limit can help you start building your credit without running the risk of ending up deep in debt.”
How do you avoid going into debt? Part of it is self-control, obviously, but what really helps a ton is budgeting.
Once you’ve received your card–even before you start using it at all–you need to create a budget that works for you. What purchases are you going to keep using your non-credit card and cash on? What purchases can you afford to place on your new credit card and pay back? If you find yourself in a serious emergency–for example, with an unexpected injury on a crazy night out–then can you run it on the card, or is that not at all possible?
Considering that the average American household in 2017 had a balance of $15,654 in credit card debt, it’s better to not get started with debt, if possible. So every month, you have to plan to pay off your balance immediately. If you do find yourself in debt, then getting a credit transfer may be useful as well.
Okay, it may seem counterintuitive considering the risks that there are of getting into debt if you spend too much on your credit card, but spending–and spending regularly–is the only way that you’re going to build credit. This was the whole point of getting this credit card in the first place, so that in the future you’ll be able to afford bigger purchases, such as buying a house or car.
However, you still want to keep your credit utilization low–which is basically the ratio between what you’re spending and how much you’re able to charge on your credit card. According to CreditCards.com, the ideal amount you should be spending to retain a good credit score is around 7 percent of the total amount you can charge.
5 Keep track of your statements
Finally, once you’ve started spending, you’ll want to keep track of every statement. In addition to watching out for mistaken charges that you can report, it’ll help you understand your spending behavior–and adjust it however you need for the next month. The total US outstanding consumer debt as of May 2016 was $3.62 trillion–and keeping track of your spending is one of the best ways to stay free of that kind of debt.
By following these tips, you’ll be well on your way to building credit and using your first credit card responsibly.
How do you plan on using your first credit card responsibly?