Getting Your First Credit Card? Here’s What to Know

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Your first credit card is a big step that can impact your finances in a big way. Keep reading for the most important parts of managing a credit card account. [[{“value”:”

Getting a first credit card is a major financial milestone. Your card can be a great tool that ultimately helps you to be more successful in managing your money. Or it can ruin your personal finances. It all depends on what you do with it.

To make sure you’re making the right moves, here are five things to know before you get your first card.

1. You don’t have to pay interest if you pay your balance in full

The first important thing that you need to know is that charging purchases on your credit card does not mean you’ll have to pay interest on them. You can charge items all month and get a statement at the end of that month. Your statement will then give you a designated payment date. For example, you might have to pay your card by the 18th or the 25th of the month when you receive your statement.

As long as you pay off your full balance by the date specified on your statement, you will not owe any interest on your purchases. This is hugely important, because this means you can get all of the benefits of a credit card without the big downside that comes from interest costs.

To make sure you pay your balance in full, keep track of what you’re spending and don’t charge more than you’ll have in your checking account when your payment is due. Set up an automatic payment of the full balance, so your card is always paid on time.

2. Credit card interest can be really expensive

There’s an important reason why you don’t want to pay interest. It can get really expensive.

The average credit card interest rate is 21.47%. You do not want to make your purchases 21.47% more expensive, so simply commit not to ever carry a balance before you get a card. If you can’t do that, you may want to wait to use that card until you are confident you can keep your spending to a level you can afford to pay back.

3. You need to make every payment on time

It’s also crucially important to make credit card payments on time. That’s because when you are 30 or more days late, the late payment is reported to the credit bureaus and this can do serious damage to your credit score. Even a single late payment could drop your score by more than 100 points in some cases.

Your credit score matters a lot, as it determines everything from your auto insurance rates to whether you can get a mortgage to how much you’ll pay for a car loan. You don’t want to screw up your credit by paying late. Again, automating your payments will help ensure that doesn’t happen.

4. Your credit card can help you build credit

You should also know that your credit card can help you earn a good score. As you pay on time, you’ll develop a positive payment history. And if you keep your credit usage to 30% or less of your available credit, this will help your score as well.

That’s because credit utilization ratio is the second most important factor in determining your credit score. If you have a $1,000 credit limit and have just a $100 balance, you’d have a 10% credit utilization ratio — which is well below the recommended 30% maximum and should help you to earn a score that opens up doors for you.

Be careful how much you charge on your cards, so you don’t hurt your credit score.

5. You can earn rewards for everyday spending

Finally, you should know you can earn rewards for the spending you do on your card. In fact, some cards offer 2% cash back on all purchases, or 1% cash back on most purchases and 5% back on groceries or another bonus category.

Research the best credit cards to find one that rewards you for your spending and start earning those rewards, so you can put your card to its best use.

By keeping these key facts in mind, you can make sure you’re ready to get your first credit card and that you use it wisely.

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