Congratulations! You’ve just been approved for your very first credit card. While you might be thrilled at this latest development, you need to make sure you know the basics before you whip out the plastic. Mishandling credit can have negative repercussions for many years to come. If you’re going to use credit, make sure you handle it wisely. Here are three tips for managing a credit card for the first time.
1. Shop around
You have many options when it comes to choosing a credit card. Take time to pick one that’s right for you and your financial goals. “It’s absolutely crucial to know what you want to do with the card and find one that fits your lifestyle and your goals. Are you just trying to build credit? A secured credit card might be a good choice. Are you looking for rewards? Well, if you never fly anywhere, you may not want to bother with an airline miles card. Try a simple cash-back card instead. Is the card just for emergencies? Make sure that you find a card with a low interest rate. After all, emergencies usually aren’t cheap, and if you can’t pay your balance off at the end of each month, interest can grow more quickly than you’d believe,” CreditCards.com Senior Industry Analyst Matt Schulz told The Cheat Sheet.
Schulz said CreditCards.com has a tool called CardMatch, which matches you with the right card for you based on your credit profile. “Using the tool won’t impact your credit score at all and you’ll save yourself a lot of time — and possible rejected applications — by being connected with offers that are the right fit for you,” said Schulz.
2. There’s no free lunch
Credit is not free money. Keep this in mind when you’re at the mall and you see a new bag, shoes, or clothing item that you feel compelled to add to your collection. Eventually, you will have to pay for these purchases, generally with interest. So think carefully before you swipe your card. Also stay far away from cash advances and convenience checks, which tend to have much higher interest rates. A CreditCards.com survey found that interest rates typically ranged from 9.99% to 36%.
“Use the card for emergencies only. However, if you are trying to build credit make small purchases and pay them off the next day. Avoid using your card as a primary means of payment. Rewards and points cards are not worth it and require you to spend more money to get the perks,” Harrine Freeman, financial expert, owner of H.E. Freeman Enterprises, and author of the book How to Get Out of Debt told The Cheat Sheet.
3. Just one late payment could ding your score
If you haven’t taken deadlines seriously before, now is the time to break that habit. Whether or not you pay your bills on time is one of the first things lenders will look at. In fact, your credit payment history accounts for 35% of your FICO score. Some of the account types that are reviewed for payment history are credit cards, finance company accounts, and installment loans. Freeman says it’s best to send funds electronically so that you can keep on top of payments. When you have payments automatically debited from your bank account, this will ensure timely receipt of funds and reduce your chances of negative marks on your credit report. You’ll have one less thing to check off of your to-do list and practically guaranteed on-time payments (as long as there’s money in your bank account). It’s a win-win for everyone.