Getting a credit card is an important part of building a great credit score – something you need to do if you’re planning on leasing an apartment, buying a house, buying a car, taking out a loan, or pretty much anything that requires proof you are trustworthy with your finances. Borrowing money, and paying it back on time, is the key to building your credit – that’s where credit cards come in.
However, it can be very easy to get trapped in a cycle of credit card debt that ends up being detrimental to your credit report. We’ve compiled some first credit card tips to help you know what to watch out for as a new credit card holder.
It can be tempting to apply for a bunch of different cards to see what perks you are eligible for. But be careful!
Every time you apply for a new credit card, the company will make a hard inquiry into your credit. A hard inquiry is when a lender requests to look at your credit history and assess your trustworthiness as a consumer. These hard inquiries will be registered on your credit report and can affect your credit score, especially if you have multiple hard inquiries within a short period.
Hard inquiries can remain on your credit report for up to two years, so beware of applying for too many credit cards at one time.
Some credit cards can have lax approval standards, making them an appealing option for first time credit card holders. However, these types of credit cards typically have annual card fees and additional service charges built into their contracts.
Not all cards have annual fees, and some cards with annual fees have perks that make them worth it, including high spending rewards or increased security. Be sure to carefully consider all of the built-in charges that will be required when signing up for a new credit card.
Secured cards can be another option for consumers with low or little credit.
Secured cards mean that the credit card lender will ask for a deposit as collateral. This deposit is usually equal to the amount of credit available on the card. The deposit is used as insurance that even if you are unable to pay back the credit card balance, the credit card company is protected.
Needless to say, this is one of the most important things you can do to ensure that having a credit card benefits your credit instead of hurting it. Each time you pay your credit card bill on time, this sends the message that you are capable of borrowing money and paying it back – improving your credit score.
It’s important to know that credit cards are not free money – if you do not pay your bills on time, you are subject to late fees and interest rates on the borrowed money. Late payments can also show up on your credit report.
Missing one or two credit card payments can mean that your interest rate can go up as well. If you miss three or more credit cards, you can have even more severe consequences, including a closed credit card or a lawsuit by the credit card company.
Sometimes when you sign up for a credit card, you are given the option of choosing when you want your credit card payments to be due. It can be a great choice to plan your credit card payments around a convenient time, either by scheduling them right after you receive your work check or picking a time when you do not have too many other bills due.
While it can seem like a great idea to borrow a lot of money and pay it back on time every month, in actuality, it’s important to monitor how much you spend each month on your credit card.
If you have a high credit usage, for example, putting $500 of your $1000 limit (50%) on your card each month, this can look worse on your credit report. Limiting your usage to 25% or lower of your credit limit each month is a good way to let potential lenders know that you can responsibly control how much you spend.
It’s extremely important to ensure that as a credit cardholder, you keep your personal details secure. Credit card thieves do not even need your physical card to make purchases and quickly consume your available credit.
Never post photos of your credit card and be wary of phone and online scams. Phishing emails are one way that thieves like to get your information. Never click links that ask you to enter payment information without verifying that they are from the company themselves.
Getting a credit card can seem daunting. But, if you do your research and are careful and responsible with your spending and payments, you can build good credit and turn your first time credit card experience into a solid long-term credit history.