Obtaining your own credit card can be a significant step toward establishing a positive credit history – but only if you use it responsibly. A track record of handling credit responsibly will earn you lower interest rates and more favourable loan terms. A bad credit history, on the other hand, can cost you a lot of money and opportunities in the long run. To be responsible with your first credit card, select the appropriate card, use it sparingly, and pay your bill on time and in full each month.
Part 1 Choosing the Right Card
1. Attempt to become an authorised user on a parent’s credit card. If your parents have good credit, becoming an authorised user on one of their cards is one of the simplest ways to establish a good credit history – especially if you’re a college student.
Once you become an authorised user, your parents’ payment history will be reflected on your credit report, so you’ll need to have a candid conversation with them about how they use their credit card.
Remember that if your parents carry a large balance on their credit cards from month to month, becoming an authorised user on that card may do you more harm than good.
2. Only apply for one card at a time. Your initial goal should be to obtain one credit card rather than a half-dozen. Furthermore, making too many inquiries in a short period of time can harm your credit score. As a result, you should only submit one application at a time.
If you’ve done your homework, you should be able to find a card with a high acceptance rate. If you’ve been approved for a card, don’t apply for another.
If you are rejected, wait a month or two before submitting another application. Do a little more research to find a credit card with a higher approval rate.
Sign up for a free online credit report service, such as Credit Karma or Credit Sesame, which will estimate your approval chances and make recommendations to help you get started on your research.
3. See if you can find a starter card. A variety of credit card companies provide student credit cards or starter credit cards for people with no credit history. These cards typically have lower credit limits and may be subject to an annual fee.
They also have higher interest rates, so look around before committing to a starter card. However, keep in mind that you’ll usually have a better chance of approval with these types of cards.
Many of these cards are also encrypted. If you have no credit, you will be approved for a secured card – though you must have the money to deposit up front. A secured card works by you depositing money to cover the total credit limit. You must still pay your bill, but your deposit mitigates the credit card company’s risk that you will not pay your bill.
4. Shop around for perks and benefits. Not all credit cards are created equal, and many have perks or benefits that you may find extremely useful. Typically, you must have a good credit history to be eligible for these cards, but it never hurts to look into them.
If you travel frequently, for example, you may want a card with travel benefits such as travel insurance on plane tickets, accommodations, or purchases made while you’re away from home.
A few cards also provide a small amount of cash back on specific types of purchases. Make sure those are things you buy frequently, and then you can use your credit card for them. For example, you might come across a card that gives you cash back on gas purchases.
Use a free credit report website to determine your chances of approval for cards that interest you. Keep in mind, however, that those approval odds are only an estimate, and there is no guarantee that you will be approved.
5. Select the credit card with the lowest interest rate. Even if you intend to pay off your balance in full each month (which you should), you should keep an eye on the interest rate. A high interest rate can be costly if something happens and you find yourself carrying a balance on your card.
The interest rate on your first credit card may influence the interest rate offered by other lenders in the future, such as if you apply for a car loan.
There’s a chance your credit card company will lower your interest rate after you’ve used the card responsibly for several years, but don’t count on it. Credit card companies are more likely to increase your credit limit rather than lower your interest rate.
After you’ve had your first card for a few years, you should apply for another with a lower interest rate.
6. Consider obtaining a store credit card. Many department stores and retail chains provide credit cards that can only be used in their establishment. These cards typically have high interest rates but are relatively easy to obtain.
If you decide to get a store card, choose a store where you frequently shop. Stores like Wal-Mart and Target are good options because you can buy groceries and other necessities there.
Part 2 Using Your Card
1. Make a thorough budget. A written budget will help you manage your expenses so that you don’t overspend on your credit card and can use it responsibly. Include information about your monthly income as well as all of your regular expenses.
Determine which expenses you can pay with your credit card. These should be purchases that you would normally make with cash or a debit card, so that you can pay off your credit card balance in full at the end of the month.
For example, you may decide to pay with your credit card at the gas station. This is especially beneficial if your credit card offers cash back on gas purchases.
2. Use your card only on occasion. You can’t just leave your first credit card lying around collecting dust. To establish a positive credit history, you must use your card on a semi-regular basis.
Keep in mind that a credit card company may cancel a card that has been inactive for an extended period of time. This cancellation may have a negative impact on your credit score and make it more difficult to obtain another card.
If you do not use your card once a month, it may affect how your payment history is reported.
3. Enable online access. Once you’ve received your first credit card, create an online account to receive real-time updates on your transactions and to make payments easily. You can also set up electronic billing so that you don’t have to wait for statements in the mail.
4. Make use of perks and benefits. If your card comes with any extra perks or benefits, make sure to activate and use them before they expire. When you receive the welcome packet from the credit card company, it should include a comprehensive list of member benefits; carefully read them.
Once you’ve determined your benefits, you’ll be able to determine which purchases to make with your credit card in order to maximise your rewards.
5. Maintain a low balance. In general, you should not use more than 25 to 30 percent of your available credit. Even if you end up carrying a balance over to the next month, never charge more than that percentage of your credit limit.
Carrying an excessively high credit card balance can have a significant negative impact on your credit score. If this is your first credit card and you have little to no credit history, this can be especially damaging.
6. Take advantage of credit card safeguards. When compared to debit cards, credit cards provide significant consumer protections when used to make a purchase. As a result, whenever you make a large purchase, use your credit card if at all possible.
You should also use your credit card whenever you make a purchase that you may want to dispute later. Assume you’re paying for car repairs ahead of time. If the repair fails to solve your car’s problem and you want your money back, you’ll have a better chance if you paid with a credit card.
Part 3 Paying Your Bills
1. Keep a record of your deadlines. To establish a solid credit history, you must pay all of your bills on time, not just your credit card. Other businesses, such as mobile phone companies and utility companies, may report late payments or other negative history.
It can be beneficial to create a calendar or spreadsheet with due dates so that you are aware of when all of your bills are due.
You might also want to set up reminders on your phone to notify you a few days before a payment is due.
2. Set up recurring payments. The simplest way to ensure that your bills are paid on time is to set up automatic payments. You don’t have to worry about when the bill is due with an automatic payment, as long as you have enough money in your bank account to cover it.
Most businesses allow you to set up automatic payments through your online account. Your bank may also allow you to set up automatic payments from your checking account.
Keep a close eye on your bank account balance so you know there’s enough money to cover your bills when they’re withdrawn.
3. Each month, pay off your entire balance. In general, the best way to be responsible with your first credit card is to pay off the entire balance each month. If that isn’t possible due to an emergency or an unusually large expense, you should still pay as much as you can and avoid carrying a large balance from month to month.
If you use your credit card for a large purchase, you may want to consider making two payments per month instead of just one if it makes it easier for you to pay it off quickly.
When paying off your balance in full, double-check your credit card information to ensure you won’t be charged a fee. Some credit card companies charge fees to users who pay off their balance in full each month, allowing the credit card company to profit from your usage.
4. Examine your statement thoroughly. Make sure you read over your credit card statement every month, whether it comes in the mail or electronically. Check for any unusual charges and compare them to the receipts you’ve saved.
If you see an unfamiliar charge or one you suspect is fraudulent, contact your credit card company right away to dispute it. If you wait too long, you may lose valuable benefits, so call as soon as you notice the discrepancy.
Creative Commons License