Before you plan your first few credit card purchases, it’s essential to understand how credit cards work, what to avoid, and how to use them to establish an impressive credit score.
Types of Credit Cards
There is an overwhelming amount of credit cards available today. Rest assured, all you need to do is figure out which type works best for your needs.
Secured credit cards: A good option if you don’t have a credit history and want to build your credit
Rewards credit cards: Ideal if you want to earn bonus points on purchases that can be redeemed for merchandise or gift cards
Travel credit cards: Collect credits that can be used to purchase airfare, hotel accommodations, and more
Cashback credit cards: Perfect if you want to earn cashback or statement credits on your spending
Business credit cards: Keep your personal and business expenses separate
Store credit cards: An expensive option to pay for purchases over time
Selecting your first credit card is a personal decision. Your credit card should reflect your daily spending needs and provide you with perks and benefits to help you reach your financial goals.
If your goal is earning rewards, make sure you know which credit cards deliver your desired rewards. That could include cashback, flexible travel rewards, or credit card points you can transfer to airlines and hotels. Either way, you’ll want to choose a credit card that lets you earn rewards in the categories where you already spend the most.
Use Your Credit Card to Build Credit
If this is your first credit card, chances are, you may have little to no credit. If you currently have no established credit, it may be wise to consider a secured credit card as your first choice. Secured credit cards are backed by a cash deposit so that the cardholder can always make their payments.
To begin building a healthy credit score, treat your credit card like it’s a debit card. In other words, every time you charge something, plan to pay it back immediately. A good rule of thumb is never to charge more than you can afford to pay back at the end of the month.
Plus, Credit Karma recommends spending no more than 30% of your available credit line. That means running up your balance could hurt your credit score. Want to know more? Read this helpful article to learn precisely how credit scores are calculated. Having a solid credit score could make all the difference when it’s time to rent an apartment, buy a home, or purchase a vehicle.
Take Advantage of Credit Card Rewards
Reward credit cards can give you cashback, travel rewards, and more, depending on your needs. If you’re a frequent explorer, you can earn free flyer miles as you make purchases with a travel rewards card. If you’d prefer to stick to a card that accumulates additional cash into your account, then a cashback rewards credit card might be right for you.
Once you have selected your ideal rewards credit card, it’s essential to become familiar with the rules of how to redeem rewards. For instance, to redeem points or cashback, you often need to spend a certain amount of money during an allotted time. As a first-time credit card user, it can become challenging to manage the logistics of earning your rewards, so you must research your particular rewards card to understand all the details.
Avoid Credit Card Fees
Having a credit card should not be taken on lightly. You should be prepared to exercise financial responsibility before you even consider applying for a credit card. That includes understanding any fees that may be associated with your credit card. For example, many cards charge an annual fee, foreign transaction fee, or cash advance fee. Plus, it’s common for credit card issuers to charge a late fee for missed or late payments.
To avoid these expensive fees, always read the fine print, and make your payments on time. A best practice is to set up an automatic monthly payment to avoid a late or missed payment.
Before signing up for a new credit card, figure out what you hope to accomplish with a new card, and go from there.