When I was in college it was easy to apply for a credit card, even if you had no source of income. Tables were set up all over campus offering swag for you to sign up. When I got my first card – with the massive credit limit of $500 – I was excited and nervous. I’d heard about how you can get in over your head, but I also felt like an adult with my own little piece of plastic.
What I didn’t know then could fill a book (or at least a timely blog post). I never read the card agreement and didn’t really understand how interest worked. Here are some tips to help you make more educated decisions than I did.
Pay it off in full every month
I could have listed many items first, but if you’re even considering getting a credit card you need to decide now that you will pay it off monthly. In full. Every dollar. You will see a minimum payment – sometimes even highlighted or in bolder print than your full payment. Ignore the minimum and pay in full. This habit will serve you well for years to come.
Pay it off on-time
In the days of mailed bills and writing checks, you had to estimate how long it would take for your bill to get to the appropriate office. Now your online bill payment system should give you the date the payment will arrive. Since you are a new customer, try to get the payment in a little early. I’ve made on-time payments for years. If for some reason a payment arrived late, I would have these on time payments as a basis for me to fight any late charges. You don’t have that history – make that history.
Don’t believe the hype
While many initial cards have low credit limits, you may still be surprised by the amount of money they give you to spend on anything. Don’t fall for their traps. Just because they say you can charge up to several thousand dollars doesn’t mean you need to spend nearly that much. In fact, your credit score will be happiest if you only spend a small percentage of your credit limit.
While they may give you the ability to access thousands of dollars, don’t forget this is a loan. You are purchasing things on credit and if you don’t pay it back in full, you will pay interest.
Have an initial plan
When you’re starting with credit, come up with a plan of where you might use your card. Do you want to use it for groceries and gas? Maybe just have it for online orders? While you’re deciding where, decide how much you want to spend too. Try to keep your spending under a certain dollar level, especially at first.
Keep an eye on the spend
Charges add up quickly. I’ve never been pleasantly surprised by an incredibly low bill. But on many occasions, I’ve had to sit down after seeing four airline tickets and hotel reservations on a bill. Once I review the charges though I’m fine. As you’re getting accustomed to credit, consider setting up notifications from your credit card company. Most will text you when the card is used (great for security) and some will even let you know when you’ve hit a pre-set spending level.
Read the Ts & Cs
It was years before I actually read this fold-out tiny-print document. Don’t be like me. Not only do the terms and conditions tell you all about your interest payments and grace period, it also educates you on the benefits that come with the card. Many offer rental car insurance or an extended protection period for purchases. Others may provide rewards – cash back or points with purchases. Understanding what your card covers can help you save in other areas.
Use your ATM card for cash advances
One of the great things about credit cards is you get a 30-day interest-free loan if you make full, on-time payments. However, not everything charged on a card gets that treatment. If you use your credit card at the ATM for a cash advance, not only will you pay the fee from the ATM for the cash, but you will also pay a fee to the card company (often 5% with a $10 minimum). The worst part – you start paying interest immediately. And many credit cards charge higher interest on cash advances than they do on charges. Get cash fee-free at your bank’s ATMs.
Also, make sure you know what constitutes a cash advance. Obviously hitting the ATM for $50 on a night out is a cash advance. Many credit card companies consider lottery purchases to also be cash advances. If you open an account at a new bank and use your credit card to fund it, that may be a cash advance too.
Use your rewards
I keep my card rewards pretty simple. With one card, I get a flat percentage back on all purchases; with another we receive a credit to a warehouse club. If you have a rewards card, make sure you’re using your rewards. I tend to save the cash-back until around the holidays. It never covers the full amount I spend, but having $100 or $200 deducted from the Christmas shopping total makes it less stressful.
Don’t ignore problems
There’s a reason so many people owe thousands in credit card debt – it’s really easy to do! Maybe you have an emergency and have to put more on the card than you planned. Maybe you have a rough patch and decide a vacation to Tahiti is just what the doctor ordered. Or maybe you shouldn’t have opened an account at all because you can’t pass up sales. Whatever the case, if you start down that rabbit hole into debt, don’t assume it will fix itself. The quicker you start attacking the debt the quicker you can pay it off.
Research your card options
Did credit cards offer points or rewards (other than free t-shirts) back in the day? I have no idea. I just signed up because I liked the shirt. If you’re just starting this process, take a minute to look at your options. Consider how you’ll use the card, but also what rewards will benefit you. There are cards with no annual fees and no foreign fees, and cards that cost thousands just for the privilege of carrying them.
While a credit card isn’t a necessity for all aspects of life, it certainly makes life easier. But that ease of use can become a headache if you don’t manage it well. Setting up good habits now when you’re just starting out will help you in the long run.
Photo by Heidi Fin