Your first credit card can set you free. Convenience and options for you. Managing this responsibly can benefit your credit health. which is good for borrowing money in the future. Here's what first-time credit card users need to know.
1. Basic knowledge of credit cards
Credit cards allow you to borrow money to make purchases. Your bank will give you a credit limit, which is the maximum that the creditor can put on your card. Often, as long as you pay your balance in full each month. You will not be charged for using the card. If you have outstanding balances each month, you will pay interest. The interest rate, called the APR or annual fee, depends on your credit history and card type.
2. Control your expenses
Lenders want to make sure you don't spend more than you can afford. A general rule of thumb for building a strong credit history is to spend no more than 30% of your credit limit. If you regularly use your card to pay for purchases that don't fit your budget, you may run out of all your available credit. Use your card for planned purchases, take time to shop for the best deals, and make sure you have a payment plan before you shop.
3. Pay on time
Missing or late on a payment can have serious consequences. This can result in late fees, interest and, in some cases, higher annual yields. Additionally, late payments can negatively affect your credit score, which could affect your ability to obtain loans at favorable rates in the future. You can set up automatic payments through your bank's website or mobile app to make sure you get paid on time.
4. Pay the balance in full.
The best strategy to avoid going into debt is to pay off the balance in full. But if you can't do it by costing more than the minimum amount required. It will lower your outstanding balance, saving you money in interest. It depends on your balance and the annual interest rate. Increasing your monthly payments can save you hundreds or even thousands of dollars in the long run.
5. Check your credit card charges frequently
It's a good idea to keep track of your credit card purchases. Most banks offer online and mobile banking apps with features to help you manage your credit card. You can access your transactions in real time instead of having to wait for a monthly paper statement to arrive. You can also set up alerts to get notified about suspicious charges, when you're getting close to your credit limit, and when it's time to pay your bill. Plus, if you lose your card or see a suspicious transaction, you can quickly report it.
It is important to learn how to protect yourself from fraud and what to do if you become a victim. Remember these tips:
Do not provide your credit card number over the phone unless you initiated the call. Create a unique strong password for the account. Set notifications for unusual activity and check your account frequently.
6. Check your credit report
You are now seriously building credit with your first credit card. It is important to develop the habit of following it. The three major credit reporting agencies, Equifax, Experian, and TransUnion, track your credit history. You are entitled to a free report from each one once a year. Reviewing your credit report regularly can help you catch errors that could negatively affect your credit score. Common misconceptions to look into include debit recorded more than once or incorrect account balances or credit limits. If you find an error, the Consumer Financial Protection Bureau has training and sample letters for filing a complaint.
7. Find your credit score.
Your credit score is based on the information in your credit report and is used to measure your confidence in repaying the money you borrow. In general, good credit health can help you later when you want to make larger purchases that may involve loans or other credit cards. Many banks offer free credit checks through online banking and mobile apps. If you want to rebuild your credit or are building credit for the first time, consider starting with a secured credit card to help build your credit history.