Securing your first credit card ranks among the most exciting financial experiences in a young adult's life. The ability to shop online without asking permission or buying movie tickets without standing in line alters how everyday people navigate the world. Embracing an improved quality of life is wonderful, but it’s crucial to avoid common first credit card mistakes that can result in a financial setback and a damaged credit score.
Your First Credit Card Offers Many Benefits
To say the benefits of securing your first credit card outweigh any minor interest payments would be something of an understatement. When young adults apply for their first credit card, few understand the potential positive impact it can have on their future.
For example, establishing credit helps build a robust FICO score. And that three-digit number opens doors to automobile loans, lines of credit, and eventually home loan approval. If it’s challenging to connect the dots between a first credit card and long-term benefits, these rank among the short-term benefits first credit cards are able to offer.
- Emergency Resources: When checking account funds run thin, a first credit card serves as a buffer until the end of the month. Car repairs, an emergency room visit, or needing a last-minute gift are simple transactions when you have a low-interest credit card.
- Rewards: Applying for the right first credit card could open up reward options. Some programs offer bonus points based on usage, while other programs allow cardholders to redeem points for brand-name merchandise.
- Convenience: The vast majority of businesses accept credit cards as a payment of choice. E-commerce platforms typically offer two options — an unprotected debit card or a secure credit card. The latter is the obvious better choice in terms of financial protection.
- Security: Accidentally misplacing your credit card can be far less detrimental if reported immediately than misplacing cash.
Qualifying for a first credit card remains an absolute game-changer in one’s life. But the one very important caveat involves using that exciting piece of plastic wisely.
First Credit Card Mistakes You Have To Avoid
Although frugal use and consistent monthly payments improve FICO scores and create borrowing opportunities, misuse can have a debilitating effect. Setting yourself up for success involves conducting some due diligence before applying for a low-rate credit card and following through after approval. These rank among the six all-too-common mistakes first credit card users make.
1. Forgetting to Compare Fees Before You Apply
Large lending institutions typically charge high interest rates for people applying for their first credit card and charge a yearly fee. Average rates hover around 18.32 percent APR1, which is expected to rise. That amount of monthly interest can prove problematic to a budget. Beginning your research at a local credit union is a great place to start. Rates are typically extremely reasonable by comparison and many offer credit cards that require no annual fee.
2. Not Creating a Budget and Credit Card Payment Strategy
The excitement of being able to make online purchases or take a friend or family member out for dinner too often results in overspending. Credit card spending doesn’t feel the same as cash because you don’t see your bank account dwindle. By making a reasonable monthly budget and sticking to it, you’ll have a manageable payment each month.
3. Ignoring the Credit Card Disclosure Agreement
The fine print in some credit card agreements places cardholders on the hook for annual renewal charges, penalties, and unexpected changes to interest rates. For example, some credit cards entice borrowers with a zero-interest grace period. When the time elapses, the company may charge back interest, and your bill swells. Read the disclosure agreement and ask questions before signing.
4. Choosing The Wrong Credit Card For Your Needs
First credit card applicants tend to be attracted to shiny offers because they aren’t familiar with what to expect. For instance, college students may be best served by taking out a card tailored to their needs. But when car repairs emerge and an 18- to 22-year-old is strapped for cash, taking a chain automotive repair company’s offer seems like a good idea. Such moves can max out a first credit card applicant's borrowing bandwidth quickly. Be sure to apply for a reputable credit card ahead of time so that you’re not forced to accept a card with less-than-favorable terms.
5. Not Knowing The Card Requirements
Applying for a first credit card when you don’t meet the requirements can result in a temporary setback. The lender will make an inquiry to one or all of the major credit reporting bureaus. When a hard pull is completed, your FICO score dips. Those who are new to credit cards generally have fragile scores and any drop could result in future rejections. Understanding the qualification thresholds and when a cosigner is required can provide confidence before a credit pull is completed.
6. Not Understanding How Your First Credit Card Can Impact Your Credit Score
It’s not uncommon for new cardholders to maintain a running balance. The not-so-conventional wisdom revolves around paying a little interest, thinking this will make credit card companies more inclined to approve a personal loan. Truth be told, your FICO score measures credit utilization and anything over 30 percent restricts future borrowing. First-time card users would be wise to pay off monthly balances or keep them low to improve their credit scores. It’s also important to fully understand the ramifications of missed or late payments. Any late or missed payments will also negatively impact a credit score, so proper card use and repayment are essential.
Can't Decide Which Card Will Make the Best First Credit Card?
If you’re ready to apply for your first credit card, Peach State has the low rate, rewards, or student credit card you can count on.
If you need help deciding which card is best for your unique situation, contact Peach State today! We’re happy to help.
For tips on finding the best first credit card, review our "The Best Credit Cards Always Offer These Hidden Benefits" complete guide!
Click here for complete details about Peach State’s Visa Credit Cards, including interest rates and disclosures.
1 APR – Annual Percentage Rate