Are you thinking about applying for your first credit card? Have you managed to go without until this point, but now you think the time is right to get one? Owning a credit card can offer many conveniences, including being able to pay for purchases you may not have the cash for at the moment, making reservations, earning rewards (depending on the card), helping with unexpected emergencies, and even helping you build your credit rating. But for all the benefits they can offer, there are still some important tips and information that first-time credit card holders need to be aware of.
Below, let’s look at ways to ensure you’re a responsible credit card holder, including knowing what to expect and how to make the best use of your new card.
1. Your credit rating can drop after you get your card
Most people realize that by getting a credit card you can then start to build your credit rating, helping you to look more favorable in the eyes of lenders. But here’s something you may not realize and that’s the fact that it will take time to build your rating.
A common question people have is, “why is my credit score low after getting a credit card”? Good question!
The assumption is that there should be no change, or an increase in the credit rating, which isn’t the case. Tally, which provides people with low-interest credit lines, offers more information on why your credit score dips after getting your card. As Tally points out, it will affect how many hard inquiries have been made on your credit, the number of new accounts, and the credit history length. The good news is that the impact will be minimal, and it won’t be permanent.
2. First-time holders: Start tracking all credit card purchases
Credit cards are meant to make things easy and offer you convenience. It’s very quick and simple to swipe your card for purchases and not give it a second thought. That’s what the credit card companies are hoping for so that you make more and more purchases, resulting in higher interest payments.
This is where responsible card ownership should kick in. Experts suggest you track all your credit card purchases in real-time so you’re always aware of what you’ve spent, as well as where and what your balance is.
Not only will this help you to manage your finances, but it also helps you to identify if any fraudulent purchases have been made since you will recognize them right away. Most lenders feature companion apps nowadays where you can track all your expenses and payments. If the credit card company doesn’t have this option, be sure to download a budgeting app that will allow you to track all important details.
3. Always aim to pay the balance in full
The next tip is in regard to your monthly payment. You will be required to pay a monthly minimum which will be a percentage of the balance, plus the interest accrued on that balance.
While you might be tempted to just pay the minimum if you stick with this approach, you will never pay off the credit card in full. The amount of interest you pay over time will also be mind-boggling.
Be sure to always pay the balance in full each month. If for some reason you’re unable to pay it in full, aim to pay more than the minimum. For those who may be forgetful and have a hard time remembering bill payments, set a reminder on your calendar or smartphone.
4. Don’t max out your credit card
Another tip is to make sure you don’t max out your credit card. In other words, do your best not to go over the full limit.
Otherwise, you risk hurting your credit rating. Experts tend to agree that keeping the balance around 30% of the total limit allowed will be the best for your credit rating.
5. Look for a card with no annual fee
Some credit cards will charge you an annual fee, which is a set amount you have to pay regardless of how much or how little you use the card. Ideally, you want to find a card that doesn’t have an annual fee.
When you choose a card without a yearly fee, you are saving money instantly. Think how much you’ll save over 5 years.
6. Choose a first-time credit card that offers rewards
The final tip is to choose a credit card that will give back in some way, such as with rewards. Those rewards could be in the form of cashback savings, discounts, points that can be redeemed for merchandise, travel rewards, and so forth. There are so many different credit cards out there that you’ll want to take your time sifting through the various reward programs.
All these tips will help you to be a savvy first-time credit card holder who knows how to use the card responsibly and get the most benefits out of it.