Your first credit card can be seen as a rite of passage. You are a full-blown adult with credit to spend, and no one can stop you now. But before you have your “cash money” moment, know that with a credit card comes responsibility.
Debt is a huge problem for Americans (the average American owes $38,000 in debt), and credit card debt is one of the biggest culprits. Learn how you can responsibly own your first credit card with these tips.
Getting Your First Credit Card
Possibly the most important part to owning your first credit card is picking the best one for you. While the best credit card depends entirely on your unique financial situation, there are some basics that you need to look for:
- Low Interest Rate
- No Annual Fees
The interest rate is how much you will owe if you do not pay the credit card back by the end of each month. Aim for one as low as 1%.
Some credit cards require that you pay an annual fee in order to use it. These types of cards are for people who have already built their credit and will get a lot of benefits for it. If you’re just building your credit, this isn’t the card for you.
Look for Perks
There are still some perks a first-time credit card owner can get. Some credit cards offer 2-5% cash back on your purchases. That’s free money! Others offer a cash bonus when you pay your bill on time.
Using Your First Credit Card
Always, always, ALWAYS pay your credit card off monthly. 35% of your credit score is determined by how often you make on-time payments, so missing even one can be detrimental.
Beware of Spending Sprees
It can be easy to have a major shopaholic moment when you get your first credit card. In fact, I suggest not using your credit card at all for any shopping.
Set Up Two Monthly Bills for Your Credit Card to Pay
Instead, I suggest using your first credit card to only pay two bills of your choosing that are at or below 30% of your spending allowance put together. Why? This is an easy and surefire way to responsibly build your credit over time without going to crazy.
You can set up your bills to be automatically paid by the credit card and then the credit card to be automatically paid from your checking account (so long as it is regularly refilled). This way your credit will build itself without any effort from you.