Opening your first credit card can be both an exciting and daunting experience. On the one hand, a credit card offers more financial freedom and flexibility. On the other hand, you likely heard horror stories of people falling into a debt cycle that’s hard to escape.

The truth is that you should start working to build your credit score as soon as you’re able. Even if you have no plans to purchase a car or rent an apartment anytime soon, building credit takes time. And while it may seem backward, one of the best times to build credit is when you’re a young adult with limited financial obligations.

Why You Should Build Credit Early

Earning an excellent credit score is dependent upon one major component: time. The sooner you begin creating a favorable credit history, the better. But to do this, you must learn to manage the card responsibly. When you’re younger, you have fewer bills and other obligations – making it easier to use your card strategically.

By making small purchases that you can easily repay, you’ll build your credit history without the risk of going into significant debt. Consider using your credit card only to fill your gas tank once a month or for a small recurring subscription, such as Netflix.

What to Look for in a First Credit Card

Credit card offers are everywhere - from your inbox to your mailbox. While credit cards with fancy perks and big rewards can be enticing, the purpose of your first credit card is to build credit responsibly. Here are some basic dos and don’ts when deciding on which card to choose.

Dos:

• Do choose an institution you trust. Since you’re just learning to manage credit, it’s a good idea to focus on a card from a lender you trust. This will help you learn how to manage your card, and if you make mistakes, your lender will be there to help you. (If you want to learn about how Credit Unions are different from banks, read our blog on it here.)
• Do find the lowest interest rate possible. You likely don’t have much credit history at this point, so qualifying for the lowest rates won’t be an option. But you can still find a credit card with a lower rate. For example, stay away from credit cards with extensive reward programs or store-sponsored cards that give you a discount when shopping at their business. These cards usually have the highest interest rates in the industry.

• Do apply for a lower credit limit. While you may receive approval for a larger amount, you should always start with a lower credit limit. This will prevent you from overspending or getting yourself into a situation you cannot manage. For example, if you’re approved for $1,500, you may ask your lender to reduce that amount to $500, which is easier to manage.

• Do make small purchases you can easily repay. It’s very easy for credit card debt to get out of hand fast. After all, you can now easily pay for items you may not have otherwise been able to afford. However, you’ll want to learn how to manage your credit card and build your credit score responsibly. So, it’s essential to keep your purchases small, such as filling your gas tank, so you’re able to pay off your entire balance each month.

• Do only make larger purchases in emergencies. Avoid making large purchases you cannot repay in full each month unless it’s an emergency. If you need to make a large purchase, devise a plan to pay it off as soon as possible. It may be a good idea to put the credit card in a place where it’s not easily accessible until you can pay off the entire balance. Again, your goal is to build good credit.

• Do check your account regularly. Get in the habit of monitoring your credit card account regularly. By keeping a close eye on your account, you’re able to:

1. Keep track of your spending.
2. Ensure you make your payment on time.
3. Monitor for any fraud or errors.

Don’ts:

• Don’t choose a card based on rewards. Cards with lofty rewards typically come with much higher interest rates. If you cannot repay the entire balance each month, you’ll likely end up spending a lot of money to earn those rewards.

• Don’t spend money you don’t have. In other words, don’t spend money now, thinking you’ll have more money in the future to pay it all back. Even if you get a great job after school, interest continues to accrue monthly and can lead you into a debt spiral that is hard to escape.

• Don’t miss your monthly payment. Always make at least the minimum monthly payment. Remember, your first credit card is about building your credit score. Payment history makes up the most significant portion of your credit score, so you never want to miss a payment.

• Don’t open multiple credit cards. Start with a single card that you can learn to manage responsibly. If you start opening multiple credit cards, it can lower your credit score. Also, if you open several cards in a short period of time, it may cause lenders to believe you’re in financial trouble.

• Don’t use cash advances. A cash advance is when you borrow cash from your credit card – similar to withdrawing money from an ATM. You should only do this in emergencies. Often, there is a much higher rate than your standard rate applied to cash advances, and it can also lead to negative financial habits that are costly. 

We're Here to Help!

Choosing your first credit card can seem a bit daunting. But remember that your ultimate goal is to find a card that allows you to build your credit score without excessive fees or high interest rates.

As a not-for-profit financial institution, we’re here to help you make wise financial decisions. If you’re interested in learning more about our low-rate credit cards, we’re ready to help. Please stop by any of our convenient branch locations or call (949) 588-9400 to speak with a team member today

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Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.