Many people don’t know much about credit when signing up for their first credit card. Although there are many issuers that aim to get college freshmen applying, it’s important to have as much information as possible. These are seven things you should know before getting your first credit card.
Your First Card Can Build or Ruin Your Credit
Your first credit card can either build your credit or ruin it. Which way it goes depends on your usage. Keeping that in mind, it’s important to use all the tools at your disposal to be responsible with the use of your first card.
You Can Benefit from Starting with a Secured Credit Card
A secured credit card is the best way to start. It can help you qualify if you have a low credit score or no credit at all. You put a cash deposit of your own money toward it and can determine your credit limit based on that deposit.
Most secured cards run on a deposit ranging from $200 to $500. Over time, with responsible use, you can work your way up to a higher credit limit and an unsecured card.
You Should Stay Within Your Total Credit Utilization Ratio
The experts at SoFi believe that the people who are first time applying for a credit card have the misconception that you can spend an unlimited amount of money on the card. In reality, this is one of the easiest ways to fall into a debt trap.
You should remain within your card’s total credit utilization ratio, which is 30% of your credit limit. In other words, if your card has a credit limit of $500, you will want to avoid making purchases amounting more than $150.
You Should Pay Your Bills on Time
It’s important to always pay your credit card bills on time. Doing so past the due date can result in late fees and reflect negatively on you as a whole. It could even cost a few points off your credit score.
You Should Pay Your Bills in Full
You should also pay your bills in full when they’re due. Although you have the option of making a minimum payment toward your credit card, it can still result in fees and interest rates at the end of the year. The interest rates reflect your annual percentage rate or APR.
You Should Choose the Right Rewards Card
If you decide that you want a credit card that offers rewards, you have to do your homework to ensure that you find the one that best fits your needs.
However, regardless of whether you apply for a card that offers cash back on gas purchases or sky miles every time you take a flight, you should still be responsible when using it. Your card should reflect the way you spend your money, but you shouldn’t overlook using it properly.
You Should Limit Your Usage
It’s important to know that once you have a credit card, you should limit your usage. Using your card once in a while is better and wiser because it allows you to build and maintain a better credit score. If you get into the habit of using a credit card for multiple purchases per day, it results in your score regularly bouncing up and down.
Likewise, you should limit your credit use by not applying for credit too often. Whenever you apply for new credit, the issuer makes a hard pull on your credit report, which can cause your score to decrease. Only apply for credit when you absolutely need it.
Knowing these facts can help you to be smart when applying for your first credit card.