What You Need to Know When Getting Your First Credit Card
Easy Tips to Avoid Getting Into Credit Card Debt
Are you a young adult who is considering getting your first credit card?
Or maybe you are getting ready to go off to college
and will need to purchase some things on credit when you get into a cash pinch.
Getting your first credit card should not be a stressful situation ,
but it should not be taken lightly either.
There is some research and strategy involved before you just jump into the credit abyss without thinking.
I hate to bring this up, but the first thing you should be asking yourself,
or your parents should be asking themselves is:
Do you have the maturity to be a responsible user of purchasing things on credit?
That is buying things today that you can’t pay for, and expect to pay for them at a later date.
Do you understand what interest is?
For that matter compounding interest?
Albert Einstein once said:
“Compound interest is the eighth wonder on the world. He who understands it, earns it… he who doesn’t… pays it.”
So you need to understand that once you buy things on credit,
and don’t pay off the balances in full at the end of each billing cycle…
,,, that the compound interest is working against you…
…or compounding in the banks favor, not yours.
And oh do the banks love it, when you only make your minimum payment each month!
O.K. So now I have your attention with credit card debt.
For many young adults,
getting your very first credit card is a right of passage,
from irresponsible teen to a responsible member of a civilized society.
Here is the Deal:
Getting your first credit card will be the cornerstone or foundation,
of building a lifetime credit profile.
This card and future credit cards will be judged and scored over time (your lifetime)
so it is important to create good payment habits right from the get-go.
Even though you may be eager to just get a credit card and get started,
you should still shop around for best rates and your best options.
The easiest cards to get started with are usually a local department store or even a “Macy’s card.
Another option for a good “starter” card would be a gas station card.
You might want to start off with a “BP” gas credit card.
These two types of credit cards seem to be easier to get started with.
Once you have made a couple of purchases and promptly paid them off,
you can expect to be bombarded with offers from every other credit card company.
Be careful what you wish for –
When you are just starting out you do not need multiple cards.
One or two cards should be just fine to meet your “emergency” spending needs.
You also need to be careful that some of these cards may have hidden fees attached to them.
A Mileage Plus card for example or even a cash back reward card,
where a certain percentage of your dollars spent go toward air miles or other purchases may have a fee attached to it.
With a Milage Plus card, it is great to get air miles for purchases…
…that you would be making anyway…
…but know that you are charged a fee for the privilege of paying the card company interest on your purchases.
Once you have received your first credit card and you are anxious go out and spend, spend, spend,
like everyday is Black Friday…
… there are a few rules of responsible credit card useage that you will need to observe,
…that will help you many years down the road.
Especially when you settle down, get married,
and are ready for thosse big ticket items like a new car or even a house.
Without a good or better yet great credit score (700-800 fico score) you will be paying much higher interest on either of these types of purchases.
So Here are the Credit Card Rules to Live By:
#1. Always, always, always pay your bills on time. As in NEVER be LATE!
This is so important for several reasons.
First off, you don’t want to be paying any additional “late” fees to the banks.
Secondly, having “lates” reported to your credit card reporting bureaus ( Equifax, TransUnion, Experion) will start having a negative effect on your credit score.
Having late payments on your,
payment history will definitely knock your credit score down.
Aside from your overall “credit score”, lenders look for any negative information like,
do they make their payments on time or are they late with their payments? Duh!
Being late on your credit payments (just like being late for appointments or meetings) shows a lack of responsibility on your part as the borrower.
To keep your credit score in the higest possible rating, always make your payments on time.
#2. Pay off your credit debt in full each month. This one simple task will keep you from paying a
tremendous amount of interest fees over the course of your credit card usage.
Only making the minimum credit card payment each month puts you into the credit card debt spiral.
Sometimes the interest on your card will compound faster than your ability to pay it off.
(Depending on the amount of interest you are paying.)
And guess what? Once you start missing payments, the banks will increase your interest and fees.
#3. Keep your amount of purchases or credit used at around 30% or less,
in relation to the total amount of credit alloted on your card.
O.K so let’s say that your total amount of credit available on your card is $1000.00.
By trying to keep your credit usage to 30% or less,
that means that you would not use more than around $300 on that card.
The bottom line is that if you max out all of your available credit on your card(s) it will negatively effect your credit score.
If all of your cards are maxed out and you are only making the minimum monthly payments,
then it just looks to the very conservative lender,
that you at best, cannot handle your credit responsibly,
or at worst you are having some kind of financial problems.
This won’t effect your credit score,
but the banks or lenders do hit you with a fee and a higher interest rate than the regular charges for this convience.
Rest assured that the bank will not give you any added convience or service without finding a way to charge you extra for it.
Avoid the ATM at all costs.
#5. Always review and read over your credit statement or bill carefully for any mistakes or fraudulent charges.
Many times you might sign up for a monthly recurring service that has an auto rebilling feature that you may not know about.
Before you can catch it, the company has milked your credit card for months of extra services that you did not want. (or sign up for).
If you find any fraudulent charges or overbilling practices on your account,
don’t hesitate to call your credit card company immediately and dispute the charges.
Sometimes you win, sometimes you learn a life lesson.
#6 Last but not the least of things to consider:
As mentioned above, don’t load up on plastic.
Once you get your first card, like piranas in a feeding frenzy,
you will be inundated with offers from other credit card companies that want a piece of the action (or your flesh).
Resist this temptation to keep piling up more cards and available credit.
You should think of credit cards as just an emergency back up plan,
in case you get stuck in a life situation where you just don’t have the readily available cash.
The way that human nature works is that if you load up on “available” credit,
you will soon turn that “available” credit into used credit and a huge credit card bill.
Don’t think that the banks and the lenders don’t know this.
Some people just cannot resist.
Like a drug dealer feeding his customers more and more drugs,
the banks and lenders are all too happy to keep extending you more and more high interest credit,
so that they can get you “hooked” and bleed you dry.
Don’t put yourself in that position.
Remember this quote (not sure from who), “You were not born to just go to work, pay bills and die”.
But Here is the Kicker:
everyone must have a credit card or some source of credit just to make some basic transactions,
like buying an airline ticket, renting a car or a variety of other transactions.
Aside from making daily purchases, you then need some kind of credit history to get loans
to make other bigger purchases like a mortgage for a house.
So getting your credit card and creating a history of responsible credit purchases
and payments over time is how the financial world or lenders judge you for financial risk.
If you follow these tips, they will help guide you to building a strong credit history,
and help create a solid foundation for your financial future.
Make your payments on time.
Pay off all of your credit card purchaes in total for each billing cycle.
Try not to charge more than 30% of your total allowable credit limit.
Don’t load up with too much credit with additional credit cards, even if you do not use the credit.
If you follow these basic steps,
then over time you should be able to build up a first rate credit score,
that will pay additional dividends in the future,
when you do decide to go for that big ticket purchase,
in the form of having your credit approved with a great rate.
I will leave you with a couple of quotes that I hope will become food for thought on your journey to use your credit cards and create your credit history..
“Interest on debts grow without rain.”
“Some debts are fun when you are acquiring them,
but none are fun when you set about retiring them.”
“Rather go to bed supperless, than rise in debt.”
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