Opening your first credit card can be both an exciting and daunting experience. On the one hand, a credit card offers more financial freedom and flexibility. On the other hand, you likely heard horror stories of people falling into a debt cycle that’s hard to escape. The truth is that you should start working to build your credit score as soon as you’re able. Even if you have no plans to purchase a car or rent an apartment anytime soon, building credit takes time. And while it may seem backward, one of the best times to build credit is when you’re a young adult with limited financial obligations.
Do find the lowest interest rate possible. You likely don’t have much credit history at this point, so qualifying for the lowest rates won’t be an option. But you can still find a credit card with a lower rate. For example, stay away from credit cards with extensive reward programs or store-sponsored cards that give you a discount when shopping at their business. These cards usually have the highest interest rates in the industry.
Do apply for a lower credit limit. While you may receive approval for a larger amount, you should always start with a lower credit limit. This will prevent you from overspending or getting yourself into a situation you cannot manage. For example, if you’re approved for $1,500, you may ask your lender to reduce that amount to $500, which is easier to manage.
Do make small purchases you can easily repay. It’s very easy for credit card debt to get out of hand fast. After all, you can now easily pay for items you may not have otherwise been able to afford. However, you’ll want to learn how to manage your credit card and build your credit score responsibly. So, it’s essential to keep your purchases small, such as filling your gas tank, so you’re able to pay off your entire balance each month.
Do only make larger purchases in emergencies. Avoid making large purchases you cannot repay in full each month unless it’s an emergency. If you need to make a large purchase, devise a plan to pay it off as soon as possible. It may be a good idea to put the credit card in a place where it’s not easily accessible until you can pay off the entire balance. Again, your goal is to build good credit.
Do check your account regularly. Get in the habit of monitoring your credit card account regularly. By keeping a close eye on your account, you’re able to:
1. Keep track of your spending.
2. Ensure you make your payment on time.
3. Monitor for any fraud or errors.
2. Ensure you make your payment on time.
3. Monitor for any fraud or errors.
Don’t spend money you don’t have. In other words, don’t spend money now, thinking you’ll have more money in the future to pay it all back. Even if you get a great job after school, interest continues to accrue monthly and can lead you into a debt spiral that is hard to escape.
Don’t miss your monthly payment. Always make at least the minimum monthly payment. Remember, your first credit card is about building your credit score. Payment history makes up the most significant portion of your credit score, so you never want to miss a payment.
Don’t open multiple credit cards. Start with a single card that you can learn to manage responsibly. If you start opening multiple credit cards, it can lower your credit score. Also, if you open several cards in a short period of time, it may cause lenders to believe you’re in financial trouble.
Don’t use cash advances. A cash advance is when you borrow cash from your credit card – similar to withdrawing money from an ATM. You should only do this in emergencies. Often, there is a much higher rate than your standard rate applied to cash advances, and it can also lead to negative financial habits that are costly.