Managing Your First Credit Card
Turning 18 means that you’re suddenly allowed to do a bunch of cool things that you just weren’t mature enough for a few days earlier. You can buy Sharpies, sign things on your own behalf and go skydiving. Responsibility ramps up as well: any felonies you commit will now be on your permanent record and you’re completely liable for your own debt and well-being.
Credit cards are right at the intersection of awesome and responsibility. They can get you rewards, help you build up credit and establish your financial responsibility. However, they can also get you in mountains of debt and peg you with all kinds of fees. Below are some tips to help you navigate getting and maintaining your first card to optimize benefits and reduce risks.
Find the Right Card
Because of their lack of credit history, first-time credit card users have three basic options when it comes to choosing a card.
The first option is to get a card geared toward first-time users and students. These cards, like CapitalOne’s Journey card and Discover’s DiscoverIt card, have low credit limits and accept nearly everyone.
The second option is to use a secured credit card, like this one from CitiBank or this one from Bank of America. To open a secured credit card, you put a deposit of several hundred dollars in the bank. The amount of this deposit is then your credit limit. Most banks and credit card companies offer secured cards, and they are a great way to build credit without risking debt.
The final option is to have your parents or other established adults co-sign on the credit card of your choice. If you have a willing cosigner, you can get the best rates and rewards that their credit history can merit.
Learn the Basics
When you get your card in the mail, activate it and set up an online account with the credit card company. Poke around and see how you can pay your bills, get statements and find account policies and details.
It’s also a good idea to set up the mobile app and sort out your bank payment details. If you have a rewards card, you’ll want to make sure you’re signed up for rewards categories.
Use your Card…Responsibly
You should use your card every billing cycle, even if it’s just to buy one thing. Avoid using more than 30% of your credit limit; if you have multiple cards, then try to use less than 30% of their combined limits.
It’s good to have a strategy to keep track of how you’ve used your card and how much of your limit you’ve used. Some people opt to use their card for specific things—like getting gas or groceries—to keep spending stable and build credit. Others use their card for everything, but track spending using a budget app.
If spending more than you budgeted is a temptation for you, Dave Ramsey fans like to put a sleeve (like a gift card holder) over their credit cards to remind them to think before buying.
Pay Your Bill
New credit card users often fall into one of two traps. The first is to make only the minimum required payment. The second is paying the bill right after making a purchase.
For maximum benefit, pay the full statement balance at the end of each billing period. This way, you won’t be charged interest but you will still build credit–and your credit score and limit will go up over time.
Credit cards can seem scary, but with a little bit of research and planning, they can help you become financially independent.