July 12, 2023

I remember my first credit card. I didn’t understand what I was getting myself into. Interest rates. Due dates. APR. After many years and many more dollars, I have a clue and because I know better I do better. I’ve made a lot of mistakes. I wish I knew more before jumping into the high interest pool. I hope this post helps you make better decisions than I did. Good Luck

What You Need to Know

Getting your first credit card is a significant financial milestone. It’s an opportunity to start building credit history, which can affect everything from whether you are approved for an apartment, your interest rates for auto loans and a mortgage, and how many financial options you will have in the future. But with hundreds of card options, lots of jargon, and navigating the complexity of the U.S. credit system, there’s a lot to learn. Here’s what you need to know.

Understanding Credit Cards

First, credit cards are not free money. They are a financial tool that, when used responsibly, lets you space out payments for purchases, build credit history, and in some cases, earn rewards like cashback or airline miles. But credit cards can be extremely easy to misuse if you accidentally charge more than you can afford to pay back by the end of your billing statement. If you miss payments, you risk crashing your credit and racking up interest charges.

Picking the Right Credit Card

When it comes to choosing your first credit card, there’s no one-size-fits-all option. The right card for you depends on your financial situation and goals. If you’re just starting out building credit, a student or secured credit card can help you build credit. If you’re looking to earn rewards, look for a card with the most relevant perks for your spending habits and an annual fee you can recoup from your rewards.

Applying for Your First Credit Card

Once you determine which card is best for you, you can begin the application process. You will probably be asked to provide similar personal and financial information like your name, age, employer, annual income, and housing payment. With this information, the credit card issuer will run a credit check on you to decide if you fit the criteria for card approval.

Building Credit with Your Card

Your credit score reflects how good or bad you are at managing debt. It shows lenders your creditworthiness or how much risk is involved when lending you money. Here are some common blunders to avoid to keep your credit score healthy:

1. Not paying your minimum payment on time: In addition to being penalized with late fees and interest charges, late payments reported to credit bureaus indicate to future lenders that you are an unreliable borrower.
2. Using too much of your credit limit: Using more than 30% of your total credit line can affect your credit score negatively. This percentage is called your credit utilization ratio. So, if your credit limit is $1000, you would want to keep all your credit card purchases under $300 as a best practice.
3. Closing credit card accounts: While it may seem reasonable to close an account for a card you don’t use, it can actually lower your total available credit, lowering your credit utilization ratio, and shorten your length of credit history.

Remember, the best way to build and maintain a good credit score is to use your credit card responsibly. Make sure to pay your bills on time, keep your credit utilization low, and only open new credit accounts when necessary.

Disclaimer: The information provided in this blog post is for informational purposes only. It should not be considered financial or legal advice. You should consult with a financial advisor or attorney to determine what is best for your individual circumstances.