It’s almost a rite of passage for finances: You get a credit card. Many of us look forward to the first credit card. It seems like a big step, and it really is — if you want the credit score it takes to buy a house or a car at a good interest rate later on down the road.
It’s important understand, though, that a credit card isn’t your money. It’s money you borrow from the credit card issuer. This means that you have to repay the money. While credit cards can be great tools for your finances, including helping you manage your cash flow, you do have to be careful, since it’s easy to fall into the debt trap.
If you are preparing to use your first credit card, here are 7 tips to keep in mind — and they aren’t bad reminders for those who have credit cards for a long time:
1. Create a Budget and Stick With It
The most important tip for first-time credit card users (and for anyone) is to have a plan for your money. Create a spending plan, or a budget, and stick with it. Your credit card should be part of this budget. If you stick to your spending plan, you will be less likely to find yourself over-leveraged with debt. If you can’t afford it in your budget, don’t use your credit card to buy it.
2. Pay Off the Balance Each Month
If you are using your credit card within the confines of your budget, it shouldn’t be a problem to pay off the balance each month. You should pay off your balance every month in order to avoid interest fees. Carrying a balance results in interest, and that can start to add up and eat away at your wealth. Make sure that you can pay off what you put on your card.
3. Don’t Get too Excited about a Credit Limit Increase
A credit limit increase can seem like an exciting reward. For many first-time credit card users, the initial credit limit is often between $500 and $900. However, after a few months of responsible behavior, you might receive a higher limit. I remember how excited I was when the credit limit on my first card was bumped to $1,200 from the initial $800. I forgot that this wasn’t my money. I didn’t magically have a higher income to pay off the larger amount. While a credit limit increase can help your credit score due to a better-looking credit utilization, you shouldn’t spend up to your new limit.
4. Avoid Cash Advances
The interest rate on cash advances is often higher than your purchase APR. On top of that, you might be charged a fee for the cash advance. Plus, if you get the cash advance at an ATM, you’ll have those fees to pay as well. A cash advance can quickly become an expensive proposition. Live within your means so that your bank account can be the source of needed cash.
5. Pay Your Bill On Time
One of the most important things you can do is to pay your bill on time and pay at least the minimum. Late fees can add up quickly, and last payments don’t look good on your credit report. In fact, your payment history is the most important influencer of your credit score.
6. Pay Attention to What Your Credit Issuer Sends You
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If you want to keep up with the changes to the terms and conditions of your credit card, you need to pay attention the materials your credit issuer sends you. Don’t ignore the new credit agreements. Issuers have been providing notice to add annual fees, and increase other fees. If you want to know what’s happening with your card, you need to pay attention.
Remember to keep your credit card information private. Don’t give out your account number — or other information — to people who ask for it online via email or chat, or who call you and ask for it over the phone. Only provide information to those you actually contact for a specific purpose. When using your credit card online, verify that you are on a secure site before entering your credit card information.