A first credit card can feel like a rite of passage, similar to graduating high school or getting a driver’s license. It’s more than just your name on a piece of plastic. A credit card is buying power and responsibility.
Are you ready for your first credit card? Here’s a quick guide to getting that card and using it intelligently.
Why Get a Credit Card?
When used responsibly, credit cards offer convenience and financial security. Some reasons to get your first card include:
- Building credit: If you want to get an auto or personal loan in the future, you'll need to demonstrate that you have good credit and can make monthly payments on time. Credit cards can help establish that history.
- Emergencies: If you’re facing a sudden trip to the emergency room or a late-night tow after your car breaks down, a credit card is an extra resource to get you through the crisis if your emergency funds aren't accessible.
- Basic money management: Charging something to your credit card and paying off the bill on time requires some planning. In this way, credit cards help you learn how to budget and manage money.
Understand the Vocabulary
Here are common terms you should know that will appear on a credit card application and monthly statement:
- APR: Short for annual percentage rate. This is the interest rate you’re charged on the outstanding balance on your account.
- Finance charges: The charges from interest on your balance and additional fees.
- Minimum payment: The lowest amount you’re required to pay on a monthly bill.
- Due date: The day your payment is due.
- Grace period: Some creditors allow extra time past the due date to make a payment without incurring a late fee.
- Late fee: If you don’t make at least the minimum payment by the end of the grace period, you could be charged a late fee. If you don’t make a payment within 30 days after the due date, a negative report might be sent to the credit bureau.
- Credit limit: The maximum amount you can spend using your credit card. If you go over your credit limit, you will likely be charged a fee and your APR could be increased.
- Balance transfer: An offer to move a balance from one credit card to another, sometimes at a temporarily reduced APR.
- Cash advance: The ability to get cash from your credit card. Cash advances usually come with fees, a higher APR, and interest begins accruing immediately.
- Credit bureau: an organization that collects information related to the credit ratings of consumers and makes it available to credit card companies, financial institutions, and others. The three major credit bureaus are Equifax, Experian, and TransUnion.
Keep It Simple
There are credit cards that earn airline miles, cashback, and other rewards. These benefits are great for people who are experts at budgeting and planning for those perks. First-time cardholders should keep things simple and concentrate on using the card for occasional purchases and paying off the balance every month. And while 1st United doesn’t charge an annual fee for rewards, many cards do, so plan ahead for that.
Be Smart with a Credit Card
Credit cards get a bad rap because people often spend on things they don’t have money for, max out their credit cards, and never can seem to get ahead. Here are some simple tips for using credit cards wisely:
Pay on time
A missed payment could incur a late fee and could affect your credit score. If you accept the responsibility of a credit card, you must also accept the responsibility of knowing the monthly due date and how to make your payment so it posts on time.
Try not to keep a balance
The best strategy for using a credit card is to buy something, then pay it off when the credit card statement arrives and before interest is charged. Be sure you’ll have the money to pay off the balance before you make a purchase, and don’t exceed your means. If you can’t pay it off in full, have a plan to pay it off within three months.
Avoid cash advances
A cash advance on a credit card is essentially a short-term, high-interest loan. This is usually not the best option if you need cash. Instead, consider a personal loan or personal line of credit if your situation is urgent.
Protect your card
Be careful using your card while shopping online, and be extra careful to not lose the card itself. Also, enroll in fraud monitoring so you are notified if there is suspicious activity with your card. 1st United members are automatically enrolled in fraud text alerts.
Call right away
If you lose your card or suspect it’s being used fraudulently, immediately call the issuer and explain what’s going on. The sooner you call, the less hassle it will be to cancel that card and receive a new one.
How Old Should You Be to Get a Credit Card?
If you’re 18 years old and have a job, you can apply to receive your own credit card. If you don’t have a job and are younger than 21, you’ll need a co-signer for the card to be approved.
Parents, Are You Ready?
Parents who want to co-sign their college student’s first credit card or add a child as an authorized user to their account must consider if their child is ready for this step. You’ll be on the hook for any charges your child makes. And if you don’t trust them to make good financial decisions, your own credit history could be at risk.
Still, a credit card can teach responsibility and provide convenience for emergencies or college expenses (e.g., your student pays for books with a card and the bill comes to you). That’s why setting clear expectations is important, and monitoring purchases and charges lets you see how responsible your child is being.
1st United offers credit cards with low credit limits which is a good way to learn how to use a card and not be tempted to go overboard. The quicker you learn to be responsible, the quicker you’ll earn good credit, which can open a world of opportunities to you.