You probably won’t remember getting your first credit card as much as you do other firsts in life: Date, job, getting your driver’s license, buying a home, and others. But it could set the path for how some other life decisions play out.
Your first credit card can be the start to building your financial future, and how you use it could affect you for years down the road.
Build a good credit score and you could see lower interest rates on home and auto loans, for example, and receive better credit card perks. Make too many mistakes with a first card and you could have less financial flexibility. Landlords, lenders and utility companies could view a low credit score as a risky customer for them and deny you services, or at least charge you more for them.
How you handle your first credit card is important. Here are some ways to get it and use it wisely:
If you have a steady income, getting your first credit card may be as simple as applying for one.
If you’re a student, some credit cards are aimed at students — though they require the ability to repay debt or have a cosigner.
Some card issuers may require new customers to have a good credit history already, which sounds oxymoronic. How can you be required to have good credit to get credit if you don’t have credit?
But if you don’t have an established credit history, you may have difficulty being approved for a first credit card. There are options for newbies, however.
Probably the easiest is to apply for a gas station or store credit card. These cards only allow you to use them for credit at the business offering the card — a Target credit card can only be used at Target stores, for example. But buy a few things with the card and pay the bill on time each month and your credit score will grow. Try not to leave a balance because store-branded credit cards are notorious for charging high interest rates.
Another option is to get a secured credit card. It will be attached to your bank account and the spending limit on the card will be based on the amount of money in the account, or a predetermined percentage of it. If you don’t pay the credit card bill, the issuer can deduct money directly from your bank account.
Two ways of establishing credit require joining someone else’s credit account. If you can convince a parent or other relative with good credit to be a cosigner on a credit card with you, then both of you can improve your credit scores if the card is used well. Also, both of you are responsible if you don’t pay the bill.
The second option with a relative with good credit is for you to become an authorized user on a credit card they already have. Your name is added to the account and you get a credit card to use.
Paying the card on time as an authorized user will help build your credit, while late payments could hurt your credit score — and the score of the main user. Generally, you won’t be responsible for all of the debt on the card.
Using your first card well
Good habits can take a lifetime to master. Establishing good credit card habits early shouldn’t be as difficult, however, and will pay off over time as your credit score increases.
Start by only using your new credit card for emergencies. Don’t use it for everyday purchases. Set up an emergency fund that you automatically transfer money to on payday from your checking account to pay for a broken car, hospital stay or other emergencies, and then pay the credit card bill in full when they happen.
Once you’ve set up an emergency fund and have a household budget to follow, then add some recurring charges to your credit card. These can be a cellphone bill, utility bill, Netflix or other monthly payment.
If you can handle those bills without a problem — meaning you can pay them in full and on time each month — then it’s time to start making everyday purchases on your credit card if they fit in your budget.
Paying your credit card bill in full each month — and on time — will mean you won’t pay interest charges or late fees. Those two steps are the best things you can do to raise your credit score. If you can’t pay your bill in full each month, at least make the minimum payment and don’t charge anything more until you’ve paid off the balance.
Having a credit card balance is OK, as far as a credit score goes, as long as it’s less than 30 percent of your total credit card limit. A higher debt-to-credit ratio and creditors could look at you as a risk because you may be spending more than you can afford.
From time to time you may get blank checks from your credit card company. Don’t use them. They’re cash advances on your credit and carry higher interest rates than regular charges do.
After getting your first credit card, you’ll likely get more credit card offers in the mail from other credit issuers. They may offer all types of rewards and better rates than your current card. Don’t go for them until you’ve established a good credit report for at least a year. Having too many credit cards can only complicate your finances and make it easier to overspend.
Lastly, read your credit card statement carefully each month. Look for fraudulent charges and other errors, and report them to your credit card company immediately. And get in the habit of checking your credit report for free at least once a year from the three main credit reporting agencies to check for errors on your report.
Following these habits can help you establish good credit and keep it for the rest of your life, providing cheaper financial products as you tackle other “firsts.”