Beginning to build good credit early is important, but it is even more important to build it responsibly. As early as 18, you may start to receive credit card offers. Understanding all the details before you decide to open one will help you manage it responsibly and benefit your overall financial health. Keep these six considerations in mind when deciding to apply for your first credit card.
1. Do Research Before Applying for a Credit Card
As the offers start pouring in for credit cards, take the time to find the right card for you. Issuers of credit cards, by law, are required to disclose their fees and interest rates on their website. Compare each card thoroughly—not only the promotional offers available. These incentives eventually end, and you want a credit card with low rates, above all else.
Know that your credit is checked by the lender each time you apply for a credit card. This will put a hard inquiry on your credit report. Too many inquiries can negatively affect your credit score. Make sure you only apply for the credit card that you feel best matches your specific needs.
2. Apply for a Credit Card with Low Fees and Rates
Many credit card companies offer special introductory rates or rewards programs. When building your credit, these perks should not outweigh what truly matters—the interest rate and fees. Your goal is to obtain a credit card that works in your favor to establish a healthy credit history and provide financial assistance as needed.
It is easier to manage credit card debt if you focus on getting a credit card with the lowest interest rate possible. You will also want to find a card with low fees. Fees you should research include:
- Annual Fees
- Balance Transfer Fees
- Late Payment Fees
- Over-the-Limit Fees
3. Set Credit Card Spending Limits
Your credit card spending limit is how much you are able to spend on your card. For example, if you have a credit limit of $2,000, you can put up to $2,000 worth of charges on your card. Higher limits may be tempting, but with your first credit card, you might consider requesting a lower limit, such as $500, from your lender. This will help you avoid overspending and teach you how to manage credit card debt responsibly.
You may also set limits yourself, such as only using the credit card in emergencies or for small purchases like gas for your car. Remember, the goal is to build your credit history and score without accumulating excessive credit card debt.
4. Keep Low or No Balances on Your Credit Cards
The convenience of credit cards can easily lead to overspending. When you first receive your credit card, make a rule to only use it for small purchases that you can pay off each month. For example, only use your card to fill up your gas tank during the month. The goal is to use your card but only incur a balance you are positive you can pay in full each month. This will help you establish your credit history and boost your score.
5. Use Your Credit Cards
When you receive your credit card, be sure to use it. As mentioned earlier, making small purchases you can pay in full each month is ideal for building your credit. If you never use your credit card, your credit history will be limited. Lenders want to see how you use and manage the credit available to you. Plus, your credit card may be closed by the issuer due to inactivity if you do not use it for an extended time.
6. Set Up Automatic Credit Card Payments
Your first credit card is the perfect opportunity for building a healthy credit history. A good credit score will help you later in life when you buy a new car, purchase a home, and can even impact your ability to rent an apartment.
The largest factor in your credit score is your payment history. As a result, you never want to be late or miss a payment. In addition to the damage to your credit, you will also likely be met with unwanted fees from your lender.
Enrolling in automatic payments for your credit card is one the best ways to ensure you never miss a payment. Most lenders allow you to enroll in autopay, which makes at least the minimum payment for you each month. Just make sure you have enough in your checking account to cover the amount each month.
If you are considering opening your first credit card, Credit Union 1 has several credit card options with terms and rates that may fit your needs and financial goals.
