Here’s What You Need to Know| The Ascent


Every year, first-time credit card users peel the stickers from their cards and start exploring the world of credit. Unfortunately, no small number of those new cardholders will wind up with credit card debt and damaged credit due to misuse of these new cards.

Credit cards can be fun. They can be extremely convenient, too. Almost anywhere and at any time, you can buy things you want — whether you can afford them or not. And therein lies the kicker. Without a proper education on credit cards and building credit (which few of us receive in school), it’s all too easy to make costly mistakes.

On the bright side, a little credit education goes a long way, and managing your credit cards doesn’t take an advanced degree in finance. To help, we’ve put together 10 things first-time credit card users need to know if they want to keep their finances from taking a dangerous detour.

1. Only charge what you can afford

It might seem obvious, but enough people ignore this to make it worth stressing: Don’t spend more on your credit cards than you can afford to repay fast. First-time credit card users can be tempted to go a swiping spree, but spending beyond your means is a quick way to wind up drowning in debt.

Credit cards are convenient, but that convenience can make temptations hard to resist, since all first-time credit card users have to do is whip out the plastic for instant gratification. Instead of thinking of your credit card as “free money” — which it most definitely is not — treat your credit cards like debit cards. If you don’t have the money in the bank to pay for a purchase, don’t put it on your credit card. (This goes for experienced and first-time credit card users!)

2. Make your payments on time, every time

If you retain nothing else from our list, let it be this: Make your credit card payment on time every month!

If you only charge what you can afford, you can pay your credit card bills off in full each month — and you should absolutely do so. But, even if you happen to fall a little short of your full balance one month, make at least your minimum payment before (not on, before) your due date.

That’s not to say first-time credit card users should live in terror of being a day or two late. Being a few days behind will mean late fees and, with some cards, a hike in your APR (called a penalty APR). But it won’t hurt your credit.

However, if you fall 30 or more days behind, that late payment becomes a delinquency, and that delinquency ends up on your credit report. Your payment history is the most important factor in your credit score, and even a single delinquent payment can hurt your credit for up to seven years.

Have a history of forgetting due dates? First-time credit card users should consider setting up automatic payments for at least the minimum payment every month. This will ensure you don’t miss a payment, even at your busiest or most forgetful.

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3. Don’t just make minimum payments

So, when we say make at least the minimum payment on time every month, the “at least” is doing a lot of work. Only making the minimum payment is just asking for trouble.

Most credit cards have what’s known as a grace period, the time from when your statement closes to when your bill is due. If you pay off your full balance before the end of the grace period — i.e., before the due date — you won’t be charged any interest.

But if you only make minimum payments, you’ll start accruing interest on the remaining balance — and that interest can add up fast. The hard truth for first-time credit card users is that the minimum required payment isn’t designed to help you pay off your balance in a timely manner; it’s designed to help your card issuer make money on interest fees.

Consider this example: Imagine you have a $5,000 balance on your credit card, with a minimum required payment of 3% each month and a 15% interest rate. If you pay only the minimum, it’ll take you more than three years to pay down that balance — and more than $1,500 in interest fees.

First-time credit card users who swipe first and budget later can find themselves underwater on their cards in no time. Avoid the interest-fee trap, and only use credit cards to buy what you can afford to repay every month.

4. Know what to charge — and what to avoid

There’s an old adage that when all you have is a hammer, every problem looks like a nail. Many first-time credit card users think of their cards as a one-size-fits-all solution to any financing problem. Spoiler alert: They’re not.

The vast majority of your everyday purchases can go on your credit cards without a problem. However, some things simply shouldn’t be put on plastic. For instance, your credit card is not a great place to put any debt you’ll need time to repay — that’s what loans are for.

Think twice before charging utility bills, rent, mortgage payments, or other purchases that come with a credit card processing fee. These fees can add 2% to 3% onto your bill.

First-time credit card users should also note that purchases that could be considered a cash equivalent — such as lottery tickets, bets, or money orders — are often treated as a cash advance by your credit card company. Cash advances not only come with transaction fees, but they’ll also start accruing interest the second they hit your account.

5. Choose your cards carefully

Credit cards are not all alike, and you should choose first cards that best fit your needs and spending habits. First-time credit card users can be lured in by sign-up bonuses and the prospect of big rewards, but every card has its fine print.

For example, those tempting store credit cards you’ll see at every checkout may look great; who doesn’t want to save $20 on a store purchase today? But store credit cards tend to have astronomical interest rates, and most store cards — and their rewards — can only be used to make purchases at those stores.

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For your first credit card, you’ll have limited options. Student credit cards are best for, well, students, and they can offer good rewards. If you’re not a college student, consider a secured credit card. Other than requiring a (fully refundable) deposit to open, secured cards are just like any other credit card. Some secured cards even offer purchase rewards.

First-time credit card users should also limit how many new cards they open. Opening a new credit card has a number of credit score implications. Simply applying for a new card means a hard inquiry on your credit report, which can drop your score by a few points. Each new card account you open impacts your average account age and your new accounts factor.

6. Beware of fees

Although credit cards are technically made of plastic (or metal, in some cases), figuratively, they’re made of fees. You can see all the fees charged by your credit card by reading your cardholder agreement — fees usually get an entire page.

First-time credit card users will likely already have some idea about annual fees (charged every year to keep your credit card account open) and interest fees. But those are not the only fees your card issuer may charge.

Late fees, for instance, are extremely common, and you’ll experience them if you ever make your payment after the due date. If that payment happens to be returned for some reason, you’ll also likely see a returned-payment fee.

Something first-time credit card users may not realize is that certain types of transactions have fees. Balance transfers nearly always come with fees, usually a percentage of the transferred balance. Cash advances (or purchases termed such) are also charged a transaction fee. Many cards will charge a fee if you make a purchase in foreign currency, too.

7. Check your statements for problems

Each month, you’ll receive a bill for your credit card. First-time credit card users may be tempted to simply check the balance and chuck the card statement in the bin. Instead, take a minute to review all the charges.

Do you recognize every charge? If an identity thief has used your credit card — or, more likely these days, just the information on the card — let the company know.

Fraudulent charges on credit cards are not uncommon (even for first-time credit card users) so be on the lookout. Even a tiny unauthorized charge of a few cents should be reported, as it might be part of a scam in which the crook is testing lots of card numbers to see which ones work before making big charges on them.

Reporting fraudulent purchases not only helps the issuer stop the fraud, it also makes sure you aren’t paying for things you didn’t buy. Legally, you’re only on the hook for up to $50 in unauthorized purchases. More likely, though, your issuer has a $0 fraud liability policy that means you won’t pay for anything you didn’t purchase.

8. Check your credit reports every year

In the financial world, having good credit is important. Lenders of all types look at your credit reports when deciding whether to offer you credit cards, loans, and mortgages.

In the U.S., you have credit reports from three major credit bureaus: Equifax, Experian, and TransUnion. Your credit report records details about your debts, your repayment history, and your current credit accounts, including credit cards.

Most first-time credit card users have limited credit history, so there won’t be a lot of activity on your credit reports at first. However, it’s important to make sure that what is there should be there by checking your credit reports at least once a year.

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You’re entitled to a free copy of your credit report every year from each of the three main credit agencies — visit to order yours. Give your report a read to make sure everything is accurate. If you find anything that doesn’t look right, head to the credit bureau’s website or call them to file a dispute.

Checking your credit reports won’t hurt your credit scores. That’s a myth that, unfortunately, makes its way to a lot of first-time credit card users.

9. Keep an eye on your credit scores for any warning signs

Your credit scores are based on the information in your credit reports, which makes them a good indicator of the condition of those reports. Small fluctuations — in the 5-10 point range — can be completely normal, especially for first-time credit card users building credit. As your credit balances rise and fall and your utilization rate changes, your score will, too.

But if you see a huge change in your credit score? Something big just happened on your credit reports.

If you know you just signed up for a new credit card or loan, or you recently closed an old account, then a credit score change is expected. However, if you haven’t made any changes to your finances that could have affected your reports and your credit score dramatically changes — check your reports. Right away.

These days, it’s remarkably easy to keep an eye on your credit scores. The simplest way for first-time credit card users to stay on top of their credit scores is through their new card. Most credit card issuers now offer free score tracking, and many offer score alerts and monitoring.

10. Don’t be afraid to ask for help

One mistake a lot of first-time credit card users make is not speaking up when they’re in trouble. Credit card contracts are full of terms and conditions and fine print, but don’t assume they’re set in stone. If you know you can’t pay your credit card bill, call your issuer and ask for help.

It’s in everyone’s best interest — yours and the issuer’s — for you to repay your credit card debt. The best plan is to call your issuer before you fall behind, as they may offer an extension or a payment plan that avoids late fees or excess interest. Working with your issuer can also prevent your account from becoming delinquent and damaging your credit.

Swipe smart, not hard

Learning the ins and outs of credit can be a challenge for first-time credit card users, but it’s hardly impossible. With a little bit of knowledge, you can go from credit noob to credit card pro, and be well on your way to a life of good credit.

Always remember that building credit is a long-term game. You won’t have excellent credit overnight; it can take years to build up a credit history worthy of a high credit score. But that effort can be well worth it when you enjoy quick approvals and low interest rates on cards and loans in your future.

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