Looking for a way to build your credit? Ironically, getting a credit card can do just that.
The key to using a credit card to build credit is using it in the right ways. When you're getting your first credit card, there are some important things to know about it.
Here are five key things you should know as you prepare to get your first credit card.
1. You May Need to Get a Secured Card
It's not uncommon for people to start off with a credit card that is secured. A secured credit card requires putting a small amount of money down on the card to secure it.
The credit card company holds this money and issues you a credit card with a credit line that might be around the amount of your deposit or maybe double the amount of your deposit.
A lot of people use secured cards when they're first starting out trying to build credit or when they're trying to improve credit that's been tarnished.
2. Look for One Without an Annual Fee
An annual fee is something many credit card companies charge to borrowers. The fee could be anywhere from $35 to $200.
You can find cards that do not require an annual fee so you should aim to find one without one. If you have to pay an annual fee, though, it's not the end of the world, but why pay it if you don't have to?
3. Don't Expect to Get the Best One
As you begin shopping around for your first credit card, don't expect to get the best card. Your first credit card might not offer an introductory 0% interest rate. It might not offer cash rewards of any kind either. It might not have any great benefits at all.
That's okay, though. It's your first card. In time, you can apply for one that does offer some incentives.
4. You Should Use It Each Month and Then Pay It Off
The best thing you can possibly know about using a credit card is how to properly use it. Here are the best tips to use for this:
- Use the card every month for regular purchases you would normally make
- Pay off the full balance when you receive the statement
- Download the credit card company's app to keep an eye on your account
- Never pay any interest on the card
- If you have to make a large purchase on it, keep the credit utilization rate as low as possible
If you follow these tips, you'll be using your card responsibly.
5. Using Your Card Will Increase Your Credit Score
As you use your credit card, it could help you increase your credit score, and there are several ways this occurs:
- Paying it off on time each month leads to positive payment history which makes up 35% of your score
- Having a credit card gives you another account on your credit report and this increases your score
- Keeping a low credit utilization rate boosts your score because it shows you are using your credit card wisely
If you do not use your credit card wisely, you should expect the opposite to happen. Using a card in ways that are not wise will cause your score to quickly decrease.
Ready to Learn More about Getting Your First Credit Card?
Are you excited about getting your first credit card so you can start building your credit? Are you ready to start utilizing these tips to help you use it wisely?
If so, apply for a card today, and check out our blog for more articles on personal finance.