Got that first piece of plastic, eh? Good for you! Now, put it away until after you’ve read this. The best first thing you can do with that new card is learning how to use it — so it doesn’t use you.
First and foremost, it’s important to remember that even though they “trusted you” with that credit card, the issuer is not your friend. They’re in business to make money, and they’re hoping you’ll maximize their profits.
With that in mind, here’s some credit card advice for beginners. Ignore it, and that dream come true could morph into a nightmare of epic proportions.
Pay Your Charges off In Full Each Month
And, right about now, you’re asking, “What’s the point of having a credit card if I only charge what I can afford to pay anyway?” That’s a very good question. Used wisely, a credit card can be a lifesaver in an emergency situation. However, it will only function that way if you use it carefully.
Think of your new card as a safety net rather than a trampoline. The true purpose of a credit card is to catch you if you should fall rather than provide fun and entertainment. Used indiscriminately, you might not have the full power of the card available to you should you ever really need it.
Paying your charges off each month also ensures you’ll avoid making interest payments. Credit cards grant you a grace period between the time you charge a purchase and the time the payment comes due. Pay that charge off in full, and you won’t encounter interest charges. You’ll also boost your credit score.
Minimum Monthly Payments = Maximum Total Outlay
When you get that first credit card bill — let’s say it totals $1,000 — you might be like, “Oh crap, I charged $1,000!” Then, you open the bill, see all they want is $25 to call it squared for the month, and breathe a sigh of relief.
Hold up, though, they aren’t doing you a favor; they’re trying to milk you for all you’re worth. Let’s say that the $1,000 balance is being carried at an annual percentage rate of 18%, and the minimum payment is 2.5% of the outstanding balance monthly – which in this case, is $25. At that pace, it will take you approximately five years to repay that $1,000 debt. And you will pay a total of $1,538.62 to do so.
As many debt relief clients have attested in Freedom Debt Relief’s reviews, minimum monthly payments are a trap—don’t go for the okie-dokie.
Keep Your Charges Well Under The Card’s Limit
One of the metrics by which your credit score is calculated is your utilization. Burn through more than 30% of the total amount of credit available to you, and you’ll start looking a bit on the risky side of credit rating agencies.
This will make your credit score dip.
Given we’re dealing with your first credit card, your limit will likely be on the lower side anyway, so you need to keep an eye out to make sure you keep your charges well within that 30% range — unless you pay the balance in full each month, as we recommended above.
Always Review Your Monthly Statements
People screw up — all the time. There could well be an instance in which erroneous or just straight-out false charges are applied to your account. You’ll wind up paying money you don’t owe if you overlook those mistakes.
You should also get into the habit of looking at the invoices you receive before agreeing to a charge. Stories abound of instances in which diners found errant charges they would have paid had they not reviewed their checks before handing cards over to servers. You might even be given another table’s check by mistake.
These four credit card advice for beginners tips are but a few of the concerns of which you need to be aware. The Federal Trade Commission offers some additional insights on this subject. Do yourself a favor and give them a read.