CREDITLIFESTYLE & TRAVEL

Credit 101: Your First Credit Card

If you’ve decided you would like to apply for your first credit card, you may be thinking, “What now?” Opening a credit card can be a building block to positive credit history which can be useful when working toward long-term financial goals. Now that you’ve decided to open your first credit card, remember that you don’t need to — and shouldn’t — accept every credit card offer you get in the mail or hear people talking about. Instead, analyze your goals and determine the benefits you're looking for in your first credit card. Let’s go over a few things to consider when making this decision.

Understanding Credit

It’s important to know what credit is and how it affects you. Credit can be defined as an agreement between a borrower and a lender that states the borrower will borrow something of value and agrees to pay it back, usually with interest. In the case of a credit card, you can avoid paying interest as long as you pay the statement balance in full every month by the due date. Credit also can refer to your credit score and your credit report. Your credit report houses all your credit information including your loans and lines of credit. Your credit score is based on the information on your credit report and can impact what interest rate you are offered for credit cards, a mortgage, auto loans and more.

Finding the Best Offer

As previously mentioned, you may already receive credit card offers in the mail. Keep in mind that accepting multiple credit card offers is a common way people can fall into credit card debt. One of the best options for credit cards is obtaining one from a financial institution you trust while you learn the best way to manage this new responsibility. This gives you the opportunity to speak with a representative to discuss the options available, additional fees and conditions that may apply for each card option offered. This also gives you the chance to learn more about the benefits of each card so you can determine which would be the best for you and your financial goals. Remember, for your first credit card, you may receive the lowest interest rate available to give you a chance to build a positive payment history. By maintaining on-time monthly payments, you show lenders good payment habits which can lead to a potentially higher credit score over time.

Create a Plan, and Be Responsible

Having a credit card can be extremely tempting. Knowing in the back of your mind that you have the ability to swipe for almost any purchase can feel enticing. With that in mind, remember that carrying a high balance month to month on your credit card can be detrimental to your credit score. Practice being disciplined regarding what you choose to use your credit card for. Ideally, you’ll be able to repay the balance in full each month to maintain a positive credit history. Try not to let your credit card become your emergency fund, if possible. This is another way many people fall into debt which leads to opening more credit cards and increasing the problem. To stay on track, consider creating a plan for what you deem to be acceptable credit card purchases and using that as a guideline for pulling out your card.

Your credit is a critical component of your finances. Whether your goal is to purchase your first car or even your first home someday, it all starts with credit. In the beginning, you may encounter a few rough patches while trying to figure things out, but if you are committed to making your payments on time and being in good communication with your financial institution, you will be on your way to building a positive financial future.