Buzz
Using your credit card wisely can help you establish a strong credit history, potentially saving you significant money over time. Conversely, mishandling your card can quickly lead to overwhelming debt and a damaged credit score.
Whether you grew up wary of credit cards or are guiding your children toward responsible credit habits, it’s crucial to grasp the fundamentals. Here’s what every new credit card user should know, along with reminders even seasoned cardholders might find useful.
A deposit might be necessary to get started
If you lack a credit history or have a low score, you might need to start with a secured credit card. This type of card requires an initial deposit, typically equal to your credit limit. Since not all secured cards are the same, here’s what to consider when choosing one.
Keep your spending well below your credit limit
This is the top advice I wish I’d received before using my first credit card. While I never maxed out my card, my credit score would have benefited from more strategic spending habits.
A good guideline is to use no more than 30% of your credit limit, with some experts recommending as little as 10%. This metric, called your credit utilization rate, accounts for 30% of your credit score. Generally, a lower utilization boosts your score, except for 0% utilization. Speaking of which...
Don’t hesitate to use your card
While keeping your credit utilization below 30% is important, completely avoiding credit card usage is also a misstep. To build a robust credit score, lenders and issuers need evidence that you’re actively using credit. Without a credit history for bureaus to evaluate, your credit health suffers. (This is why it’s beneficial to wait until your statement date before paying off your balance.)
Here’s another key tip: Even if you don’t plan to use it again, avoid canceling a credit card. High interest rates might seem daunting, but they’re avoidable by paying your bill on time and in full every month. So...
Make it a habit to pay your balance in full
This is a fundamental yet vital rule. To steer clear of high interest rates, protect your credit score, and avoid falling into debt, always pay your credit card bill on time and in full.
Stay cautious by setting up automatic payments right away. Additionally, refrain from using credit for purchases unless you’re confident you can pay them off by the end of the month (or before interest accrues).
Discover the ideal card for your needs
Once you’re comfortable using your card responsibly and paying off the balance monthly, upgrading to a rewards card is a smart move. Numerous rewards programs are available, even for cautious users—for example, Discover provides a secured credit card that includes rewards.
Dedicate time to explore options and select a card that aligns with your lifestyle. If you spend heavily on gas and groceries, a cashback card might be ideal, whereas frequent travelers should consider a travel-focused rewards card.
Use resources like Credit Cards Explained here to research top credit card options. Additionally, here’s what else to prepare before using your new card for the first time.
