8 Tips for First Time Credit Card Users

Signing up for your first credit card is a big step on your journey with money management. It has the potential to set you up for a bright financial future but, if used wrongly, it can also hurt you for years to come.

In this article we’ll share eight tips for first time credit card users. These tips will help you get the most out of your credit card, while avoiding the potential traps.

Tip No. 1: Choose The Right Credit Card

As a first time credit card user, choosing the right credit card is crucial. 

When choosing the best credit card, important considerations include things like your credit score, types of card, your payment practices, and what credit card rewards and benefits make the most sense for you and your lifestyle.

We have a whole blog post on choosing the best credit card for you, so be sure to check that out before making an application.

Tip No. 2: Make Timely Payments

Making your credit card payments on time is the single most important factor in having a good credit score. A credit card is a great stepping stone to bigger loans, such as car loans and a mortgage. By signing up for your first credit card and making your payments on time, you can start building a positive credit score for when you eventually apply for a bigger loan. 

Not only is it a proactive thing to do, but lenders also require it. Pretty much any lender will require you to have some sort of experience with a credit card before approving you for a mortgage.

If you don’t make your credit card payments on time, it can make it a lot more difficult to borrow money at a low interest rate in the future. Lenders will see the late payments on your credit report, and this can lead to denied applications, as well as extra fees and higher interest rates on the products you do get applied for.

Tip No. 3: Avoid Minimum Payments

When you sign up for a credit card for the first time, don’t get into the “minimum payment trap.”

The minimum payment trap is getting into the habit of just paying the minimum payment on your credit card and no more than that. When you do that, it can take you years to pay off your credit card balance and cost you thousands in extra interest.

A credit card is a revolving credit account, similar to a line of credit. This means that you don’t have to pay off the full balance when it comes due. You can just make a minimum payment so that your account stays in good standing.

While it’s okay to make just the minimum payment in an emergency, if you get in the habit of doing it each and every month, that’s when you can run into issues. A lender wants to see that you ideally pay off your credit card balance in full, so you’re not carrying credit card debt from month to month.

That being said, if cash flow is tight one month with your monthly payment, don’t skip your payment and make it up the next month. Always make at least the minimum payment, otherwise your credit score will suffer, as even one missed payment can have a huge effect on your credit score. Carrying some credit card debt is better than a missed payment, as long as you make the minimum payment.

Tip No. 4: Avoid Using Your Credit Limit

We know it can be tempting, but it’s best to avoid spending right up to your credit limit.

When you spend up to your credit limit, similar to missing payments, it signals to lenders that you aren’t able handle your existing credit. This hurts your credit score and can make it harder for you to get approved for other credit products in the future.

If you do end up spending up to your credit limit once or twice, there’s no need to panic. However, if you’re doing it on a consistent basis, you want to ask yourself why. Is it because you need to be a bit more disciplined with your spending, do you need to pay off your balance more frequently, or is it because your credit limit is simply too low?

Lenders measure how much of your available revolving credit that you’re using with something called the credit utilization ratio. For example, if you have a credit card with a $5,000 credit limit and your balance is $2,500 at the end of the month on your credit report, your utilization ratio would be 50%. 

A good rule of thumb is to aim to keep your utilization ratio below 30% at all times. This will help you build towards and maintain an excellent credit score. When it starts to creep above that, that’s when your score can start to suffer.

Tip No. 5: Purchase Only What You Can Afford

This tip follows on from the previous tips of keeping your credit utilization low and avoiding the minimum payment trap.

With a credit card, it can be easy to lose track of your spending, but you want to remember that you’ll need to pay off your credit card bill eventually. As such, it’s helpful to treat your credit card like cash. Before you swipe or tap your credit card, ask yourself this simple question, “will I have enough money to pay this off at the end of the month?” If the answer is no, you probably shouldn’t be buying it (unless it’s an emergency).

You can also try asking yourself, “do I really need to be buying this?” If the answer is no, then consider putting your card back in your wallet. One simple trick is to give yourself a 24-hour cooling off period. If, after 24 hours, you still really want to make the purchase, then perhaps it’s worth it.

When you consistently make purchases on your credit card that exceed your budget, you can end up paying thousands of dollars in excess interest that you wouldn’t have otherwise had to pay. It can also hurt your credit score, so it’s a good idea to keep your spending limited to what you can comfortably afford.

Tip No. 6: Keep Track of Your Purchases

Again, this speaks to the previous point. When purchasing anything on your credit card, you should keep track of it.

If you have two or three credit cards, it can be difficult to track every single purchase. Even as a first time credit card user, it can be tough to remember every single purchase you’ve made in a month. As such, it’s a good idea to get in the habit of tracking every single purchase that you make.

The good news is that it doesn’t have to be a long and complicated process. Most credit cards already categorize your purchases for you. All you need to do is log in once or twice a week and review your credit card transactions and payment history in order to keep an eye on your spending. With our credit card accounts so easy to access on our mobile devices, it’s never been easier to review your purchases.

When you keep regular track of your credit card spending, you’re a lot less likely to forget about purchases. For example, you could have paid for your college or university tuition at the beginning of the month. However, if you didn’t login to check your current balance, you could be close to exceeding your credit limit on your next purchase.

Tip No. 7: Check Your Card Statement Regularly

It’s a good idea to check your credit card statement on a regular basis. Not only is this a good way to keep track of your spending, but by doing this you can spot any fraudulent charges on your credit card.

Unfortunately, data breaches are becoming more common nowadays. You could have done everything right to safeguard your credit card details, but if a company that you made a purchase has a major data breach, your credit card details could be compromised through no fault of your own. Sometimes these breaches aren’t reported until later on.

If you don’t regularly check your credit card statement, there could be fraudulent charges on there that you don’t notice until later. This can make it more difficult to get them reversed. If you spot them right away, you can phone your credit card company and get them removed almost immediately, limiting their damage.

Checking your statement regularly will also help you ensure you have made all your payments on time. Sometimes you might think that you paid your credit card on time, but for whatever reason the payment doesn’t go through or it slipped your mind. By checking your credit card statement often, you can spot that the payment hasn’t been posted and look into it right away.

Tip No. 8: Redeem Your Card Rewards

One of the best perks about having a credit card is earning rewards. When choosing a credit card, you want one with rewards that make the most sense for your lifestyle and spending habits, and with rewards that are easy to redeem.

Cash-back credit cards are among the easiest to redeem. You can often use the cash-back towards your credit card bills or have it deposited into your savings account.

You want to use your rewards in a way that saves you money or provides you with value or enjoyment. Keep that in mind when signing up for a credit card. If it provides you with neither, you should probably think twice before signing up.

The Bottom Line

Signing up for a credit card for the first time and being a first time credit card user is an exciting time. By following the simple tips in this article, you should be well on your way to building a great credit history and an excellent credit score.