With a credit card comes great responsibility. If you can’t manage your card (and spending) properly, you could end up with tarnished credit and a huge debt burden.
To stay on track, follow these five rules after getting your first card.
Pick the right card
There are credit cards for all different stripes of first-timers—such as immigrants, students and those with no credit. Each come with varied features and their own requirements. It’s key to find the one that fits your financial profile.
If you have a short, but good, credit history, you may qualify for cards that offer rewards, either cash back or those for travel. “Find the one which gives you the most credits for the type of items you most often buy,” says Jon Ten Haagen, a certified financial planner in Huntington, New York. That means if you spend most of your money on groceries and gas, get a card that offers at least 1.5% cash back on these purchases. But if you travel often, consider one that can be used to offset hotel and flight costs.
If you have no credit or bad credit, your options are limited largely to secured credit cards. These require an upfront deposit to secure the credit line. Generally the credit line is equal to the deposit amount, which can range from $250 to $3,000. There are a handful of cards, however, that provide a larger credit line for a nominal deposit. If you manage the secured card responsibly for a year, your issuer may return the deposit to you and make the card unsecured.
Pro tip: Check out starter credit cards side-by-side based on your individual spending with ValuePenguin’s comparison tool.
Pay on time, every time
No matter what kind of card you get, always make timely monthly payments. “This is a no-brainer,” says credit expert John Ulzheimer. You avoid unnecessary late fees and help your burgeoning credit score. Your payment history on credit cards and other loan obligations makes up 35% of your FICO credit score. A clean record of making on-time payments will help to boost your score.
Pro tip: Set up automatic payments from your checking account to your credit card, so you never forget. Make sure any payment is made several days before the due date in case an electronic payment isn’t processed correctly or the check is lost in the mail, says Ulzheimer.
Pay off the entire balance
“Don’t ever charge more than you can pay off in full every single month,” says Ulzheimer. “That way, the interest rate on the card becomes meaningless.”
You have at least 21 days from your statement date to pay off the new balance before interest begins accruing. That essentially means you can borrow money for free over that period. If you don’t pay off the balance by the due date, you end up paying more for your purchases than the original retail price. Your balance also grows, making it harder to eliminate as time progresses.
Pro tip: Skip the temptation to pay only the minimum. To better understand the scourge of interest charges, play with an online credit card payoff tool or look at your monthly statement, which provides a comparison of paying different monthly amounts.
Keep your charges low
Just because you have a $1,000 credit limit doesn’t necessarily mean you should use all of it. Doing so could dent your credit score. The percentage of the available credit you use—called your utilization rate—is an important factor in calculating your FICO credit score. The lower the rate, the better—aim for 25% or less. That means you shouldn’t charge more than $250 every month on your card with a $1,000 limit, for example.
Another reason to stay far from the limit: If you get near the limit or max out your card too often, your issuer may see this as risky behavior and decrease your credit line for protection.
Pro tip: Use your card for one or two specific purposes, such as gas, groceries or a phone bill, that don’t typically exceed the 25% of your credit limit. Some credit card apps also allow you set up alerts that notify you when you’re close to the card’s limit.
Review your account
Look over your account regularly. That way you can spot any unusual activity quickly and stop possible fraud faster. Going over your charges also gives you a good idea how having a credit card may have changed your spending—possibly for the worst.
“The best test for this is simply to check if you paid your balance in full for the first two months. If you did, you might be able to handle it,” says Adam Van Wie, a certified financial planner in Jacksonville Beach, Florida. “If you carried a balance during that time, cut up the credit card and stick with cash or debit.”
Pro tip: Credit card apps make it easier to scan your recent purchases even before the statement period ends. Others offer spending alerts that can be customized by size of purchase—such as over $25—so you can keep tabs on your account in real time. That can help you find fraud or possibly curb impulse purchases.