How To Use Your First Credit Card

Getting your first credit card is a huge step toward building the credit you’ll need later in life. By using your new credit card responsibly and wisely, you can begin building a valuable credit history and pick up new habits that will benefit you for decades to come. However, far too many people get into financial trouble with their first credit card — either by racking up debt or making late payments that hurt their scores.

If you’re excited about your new card and want to make sure you’re using it to your advantage, here are some steps you should take right away.

Only use your card for purchases you can afford to pay off immediately

Due to the high interest rates credit cards charge, they are rarely the best option if you need to carry a balance for longer than a month. After all, the average interest rate for all major credit cards is currently around 20 percent, and many starter cards charge even higher rates.

With that in mind, you should only charge purchases you can afford to pay off immediately and avoid using it for “splurge” purchases altogether. Debtosh Banerjee, president of Seen Finance, says, “Using your card for small, manageable purchases (like groceries) that you can pay off immediately is a good practice for new cardholders.” Also, try to use your credit card alongside a monthly budget or spending plan.

Get into the habit of paying your balance in full

Only charging what you can afford to pay off builds the habit of paying your credit card balance in full each month. This step will not only help you avoid paying credit card interest, but it will help you avoid a growing debt balance.

Paying your balance in full each month helps avoid high interest charges and demonstrates good credit management. This is especially important when you’re building credit — avoiding interest payments keeps your costs low and your credit utilization ratio healthy.

— Debtosh Banerjee
President, Seen Finance

Most experts suggest keeping your credit utilization ratio — or the amount you owe on your cards in relation to your credit limits — below 10 percent (or 30 percent, at most) for the best results. How much you owe on your credit card accounts for 30 percent of your FICO score, making it the second most important factor. It’s second only to payment history, which accounts for 35 percent of your score.

Set up auto-pay

Since your payment history is the most important factor that determines your FICO score, you need to make sure you never pay your credit card bill late. Consider setting up automatic payments to be drawn from your bank account on your credit card bill’s due date so you don’t have to worry about late or missed payments.

You can even set up auto-pay for just the minimum payment amount. This won’t help you avoid carrying a balance from one billing cycle to the next, but it will help you avoid late fees and being hit with a penalty APR.

Earn rewards on spending

If your new credit card offers cash back or rewards points on your spending, you should take advantage of this benefit without putting yourself at risk.

For example, charge purchases that fall within any bonus categories your card offers, but don’t overspend just to earn rewards or sign-up bonuses. Always make sure what you’re spending fits into your existing habits.

Banerjee advises, “Choose a card with rewards that fit your spending habits — whether it’s travel miles, cash back on everyday purchases or other perks. It’s an added bonus to help you get more value out of your purchases as long as you stay within your budget.”

Rewards aren’t worth it if you wind up carrying a balance. With most cash back credit cards offering 2 percent back at most and current interest rates on cards hovering around 20 percent, it’s easy to see how chasing rewards while you’re in debt is a losing proposition.

Know about your card’s perks

Also, make sure you read about any perks or features your credit card offers, which could include extended warranties, purchase protection against damage or theft and travel insurance benefits.

By knowing which perks your credit card offers, you’ll be in the best position to take advantage of them. Just remember that most perks require you to pay for something with your card first. For example, you’ll only get travel insurance benefits for trips you charge to your credit card, and purchase protections only apply to items you paid for with your credit card.

Monitor your credit score

Make sure to monitor your credit usage and your progress throughout your journey to building credit. Monitoring your credit can help you spot problems as soon as they occur and help you spot signs of identity theft or fraud.

Fortunately, many credit card companies give you access to a free credit score within your monthly credit card statement. Programs like Capital One’s CreditWise and Chase’s Credit Journey can also help you track your credit score and overall credit health for free.

Keep your card and account information secure

It’s crucial that your account remains secure from fraudulent charges and identity theft. To help keep your account secure, create strong passwords that avoid public or personal information like birthdays or pet names. Passwords should be unique and private to each account. Try using a password manager to help create and store strong passwords.

You can also enable two-factor authentication to add a layer of protection on top of your password. And be wary of accessing your account using public Wi-Fi which might make your account vulnerable to fraud and identity theft. Setting up fraud alerts will immediately notify you if a suspicious charge has been made.

Do not close your first credit card

Banerjee also recommends not closing your first card even if you move onto other cards. “The length of your credit history is decided by your oldest credit product, so it’s important to not to close your first credit card even when the balance may be paid off,” he says. Depending on the issuer, you may have to use the card every so often to keep the account active even if you have graduated to more worthwhile cards that fit your financial needs and goals. But the length of your credit history accounts for 15 percent of your FICO score, so keeping your first credit card open even if you don’t use it frequently can help maintain positive credit.

The bottom line

Getting approved for a first credit card can be an exciting time, but you’ll want to make sure you have a plan to maximize the experience. By using your card intentionally, avoiding long-term debt and making the most of your credit card’s rewards and perks, you can get more bang for your buck and begin building positive credit habits that can last a lifetime.