Securing your first credit card ranks among the most thrilling 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 negotiate 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.
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 a last-minute gift are simple transactions when you possess a low-interest credit card.
Rewards: Applying for the right first credit card could open reward options. Some programs offer bonus points based on usage. Some programs allow cardholders to redeem points for brand-name merchandise and high-quality American-made products.
Convenience: The vast majority of businesses accept credit cards as a payment of choice. And 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 two hundred dollars of cash.
Qualifying for a first credit card remains an absolute game-changer in everyday people’s lives. But the one very important caveat involves using that exciting piece of plastic wisely.
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.
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 products 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
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 aren’t forced to accept a card with less-than-favorable terms.
Applying for a first credit card when you don’t meet the requirements 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. Anyone new to credit cards generally has a fragile score, and any drop could result in future rejections. Understanding the qualification thresholds, and when a cosigner is required, can offer confidence before a credit pull is completed.
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 impacts future borrowing. First-time card users would be wise to pay off monthly balances or keep them low to improve their credit scores. First-time card users may also not 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.