Owning a credit card for the first time is an important milestone. When managed responsibly, a credit card can help you establish good credit, which makes it easier to qualify for larger loans, like a mortgage on a home. On the flip side, misusing a credit card can have long-lasting consequences; a poor credit report can hamper your ability to secure a loan or, in some cases, a job.
As you prepare to start using your first credit card, these tips can help you make smart choices and avoid common mistakes that can lead to credit card debt.
1. Shop Around for the Best Card
Not all credit cards are created equal. Don’t select your first credit card simply because the company sent you a letter in the mail or you saw a really cool commercial. Research which card may be best suited to your spending habits and paying ability. Consider the card’s:
- Annual percentage rate
- Annual fees
- Length of the grace period
- Dollar amount of penalty fees
- Balance calculation method
2. Prevent Overspending
Before reaching for your credit card, consider using a prepaid card or debit card first, both of which offer the convenience of a credit card without the risk of getting into debt. With a prepaid card, your spending is limited to the balance deposited. Debit cards can also help prevent spending money that is not readily available. However, you’ll need to record debit charges to avoid overdraft fees.
3. Monitor and Limit Use
It’s not uncommon for first-time credit card holders to find that charging things can quickly get out of control. Always be aware of your budget so you’re prepared to pay what you owe. Likewise, know how much you’re obligated to pay when the credit card bill comes due. Even better, plan to pay the full balance each month. If you pay in full, you won’t pay interest on your charges, but you’ll still get the perks of using a credit card — like your card’s incentives and a potentially positive credit score. If possible, use a credit card for specific purchases, like textbooks or gas. Never max out your credit card and steer clear of certain purchases that shouldn’t be charged to your credit card.
4. Be Aware of Credit Fraud
Never give out your credit card number, unless dealing with a trusted company or organization, and never allow others to use your credit card. Keep your card and receipts in a secure location. To keep an eye on your credit activity, order a free copy of your credit report every 12 months from one of the three credit reporting agencies — TransUnion, Experian and Equifax.
Get Started on the Right Foot
Start preparing for your financial future today. Contact your Farm Bureau advisor or agent to figure out how you can start saving for your future.