Your first credit card is your introduction to adult finances, and using it wisely can set you up for a good credit record for life. Here are seven smart tips to get the most out of your new card.
Whether you’re still in college or are just embarking on life on your own, your first credit card is your introduction to adult finances. Using it wisely can set you up for a good credit record for the rest of your life. So Billshark wants to offer these seven tips on smart ways to get the most out of your new card.
1 Use It Every Month
To build good credit, you need to use the card regularly. Use it for something you otherwise would have paid cash for—a dinner out, a tank of gas. This keeps the account active, and gives the credit card company something to report to the credit monitoring agencies.
2 Pay in Full
Then pay it off every month. Not only will you pay interest on an unpaid balance, but your credit score will dip because it looks like you can’t afford to pay what you’ve charged. Also, since your first card likely won’t have a very high credit limit, it’s better to keep some credit available for emergencies.
3 Always Pay on Time
If you’re using the card to build your credit, this is the single most important factor in making the lender happy, and achieving a high credit score. Do whatever it takes to ensure your credit card payment reaches the lending institution on time: phone reminders, autopay, calendar notations.
And be aware that the due date usually differs from month to month. Don’t just look at the due date—check it against the calendar. If it falls on a weekend, aim to get the bill there by the preceding Friday. Same for holidays—pay ahead of time.
4 Review Your Statement
You can monitor the card’s activity online or through the card’s app, as well as reviewing your monthly statement when you receive it. Most likely, your lender won’t make mistakes on your bill. But if someone has hacked your card, you need to know it so you can dispute the charges as quickly as possible. Also, check to see if the credit card company has added on additional fees or increased your interest rate.
5 Watch Your Credit Utilization Ratio
If you have a credit limit of $1,000 and you spend $975 of that in a single month—even if you pay it all off with your next bill—the credit-scoring agencies won’t like that. Especially if you make a practice of it. Aim to stay at or below 30 percent of your credit limit each month (the ratio of how much credit you have available vs. how much of it you use, i.e., your “credit utilization ratio”).
6 Monitor Your Credit Score
Federal law allows you to obtain a free copy of your credit report annually from each of the three main credit reporting agencies (Equifax, TransUnion, and Experian) at annualcreditreport.com. So, ideally, you can get one from each every four months. This allows you to confirm their accuracy and challenge mistakes quickly.
7 Ask for a Limit Increase
Once you’ve had your card for at least several months, and you’ve proven you can handle it responsibly (paying in full and on time, and staying well below your limit), your lender may increase your credit limit without your asking. If not, go ahead and request an increase on your limit. Just be aware that this request may trigger an investigation into your credit history that could temporarily lower your credit score.
Billshark’s professional negotiators have an 85 percent success rate in negotiating lower bills for cable, satellite TV, Internet access, satellite radio, and home security. Because we charge nothing unless we save you money, do yourself a favor and give us the opportunity to try.
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Frequently Asked Questions
How often should I use my first credit card?
Use the card regularly—ideally every month—to build good credit. Put something on it that you otherwise would have paid cash for, such as a dinner out or a tank of gas. Using it keeps the account active and gives the credit card company something to report to the credit monitoring agencies, which helps establish your credit history over time.
Should I pay my credit card balance in full every month?
Yes. Pay it off every month. If you carry an unpaid balance you will pay interest, and your credit score can dip because it looks like you cannot afford what you charged. Since your first card likely won’t have a very high credit limit, paying in full also keeps some credit available for emergencies.
Why is paying on time so important for building credit?
If you’re using the card to build credit, paying on time is the single most important factor in keeping the lender happy and achieving a high credit score. Use phone reminders, autopay, or calendar notations. Note that the due date usually shifts each month—if it lands on a weekend or holiday, pay ahead of time, such as by the preceding Friday.
What is a credit utilization ratio and what level should I aim for?
Your credit utilization ratio is how much credit you have available versus how much you use. For example, spending $975 of a $1,000 limit in a month is high, even if you pay it off. The credit-scoring agencies won’t like that, especially as a habit. Aim to stay at or below 30 percent of your credit limit each month.
How can I check my credit report for free?
Federal law lets you obtain a free copy of your credit report each year from each of the three main credit reporting agencies—Equifax, TransUnion, and Experian—at annualcreditreport.com. By spacing them out, you can get one roughly every four months. This lets you confirm the reports’ accuracy and challenge any mistakes quickly.
