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Credit Karma Guide to Using Your First Credit Card


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Jumping into the world of credit can be scary, but applying for your first credit card is an important step in your financial journey. In this guide, we’ll go over everything you need to know to use your first credit card like a veteran — from making payments on time to understanding your credit limit.


If you’ve never used a credit card before, it’s normal to be wary. Maybe you’ve heard stories of people getting into debt or causing serious damage to their credit scores. Or maybe you don’t see the point. Why not just stick with cash and avoid getting your first credit card altogether?

The thing is, there are some real advantages to applying for a credit card and using it to build credit. If you use that first credit card responsibly, it can have a positive effect on your credit scores. Credit scores are important, as they can help determine whether you get approved for things you might need down the road, like a car loan or a mortgage.

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Still feeling shaky? You’re not alone. A 2016 credit score survey conducted by the Consumer Federation of America and VantageScore Solutions found that only 42% of millennials (those who are 18 to 34 years of age) have a good understanding of their credit scores.

Even if you’re in that 42% who understand credit scores, let’s face it: Everyone has had to face the nerve-wracking experience of learning how to use their first credit card. In this guide, we’ll review some things every new cardholder should know to start building credit responsibly.


First things first: Get the right card

If you don’t already have a credit card, this is the logical place to start.

Of course, the process of getting your first credit card can feel like a Catch-22. You need a credit card to help you build credit, but with low or nonexistent scores, you may not qualify for the card you want.

If your application for a traditional, unsecured credit card (that’s a credit card that doesn’t require collateral) has been denied, there are some alternative options worth exploring.

One way to start building your credit is to have someone (like your parent or spouse) add you to their credit card account as an authorized user. This can cause their payment information to show up on your credit reports and contribute to your credit history and scores. Just make sure your activity doesn’t cause them to miss a payment or rack up debt, as this could end up hurting the credit scores for both of you.

You may also want to consider applying for a secured credit card. Secured credit cards require you to make a cash deposit, which will be equal to your credit limit. These cards are generally easier to qualify for than traditional cards and are geared toward those with little to no credit history. Creditors may be more willing to approve new credit users for secured cards than unsecured cards because the collateral lowers credit issuers’ risk — the issuer can always use your cash deposit to pay your bill if you skip a payment.

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How do I decide which credit card is right for me?

Shopping for the right credit card can be overwhelming. Without knowing what to look for, you may be tempted to give up.

Think about what’s important to you when choosing a credit card. When shopping around, make sure to get specific about comparing fees and rates, like the annual fee and the variable APR for purchases. Making a side-by-side comparison can help you with your final decision.

Be aware that your credit scores may limit what you qualify for. If your scores aren’t high enough for a particular card, you may not be approved. We recommend checking your Credit Karma approval odds before applying for a card, as these odds can give you a better idea about whether you’ll be approved.

Don’t spend money you don’t have

Once you have your first credit card, you might be tempted to think of it as access to free money. After all, you just swipe the card and your purchase is covered, right?

Nope. Charging items on a credit card doesn’t mean you get them for free. It just means that you don’t have to pay for those items right away.

As easy as it may be to charge items to a credit card, remember that you’ll eventually have to pay back every dollar you spend, plus any interest and fees charged by your credit card company. If you fail to pay back your credit card debt, you could face steep interest and penalty charges — not to mention the damage to your credit scores that could follow you for a long time.

Instead, when using a credit card, make sure you know how you’re going to pay back each purchase. As a rule of thumb, buy only what you can afford to pay back within 30 days.

Creating and sticking to a budget can help you figure out exactly how much you can afford to charge on your card. And if you spend within your budget, you’ll never have to choose between paying your credit card bill and covering necessities, like rent and utilities.

Don’t trust yourself to stick to a budget just yet? Then you might consider using your card only for a small, recurring expense, like a monthly subscription or membership, and paying for everything else with cash or a debit card. This can be a great way to get started, as it helps you build credit without racking up balances you can’t pay off. Speaking of payment …

Never miss a payment

Most credit card companies require you to make a minimum payment toward your credit card balance by a set date each month. It’s of the utmost importance that you know both your payment due date and the minimum amount due. Why? Because failing to make a payment can have steep consequences.

The good news is that minimum payments tend to be pretty manageable. Your minimum payment is based on your full balance, including interest from not paying your balance in full. With some credit card companies, if your balance is lower than the set minimum payment, that balance amount will be your minimum payment.

Missing just one payment for such a small amount may seem like no big deal, but there can be major and lasting effects. Let’s take a look at what some of those effects might be:

Penalties for a missed payment

If you fail to pay the minimum due or miss your due date, you’ll be considered late on your payment. While your credit generally won’t be affected by a payment that’s less than 30 days late, you may be charged a late fee.

You can potentially be charged up to $27 the first time you’re late and up to $38 for any additional late payments you make within the next six billing cycles. You may also trigger a penalty interest rate, which could be as high as 29.99%.

Potential impact on your credit scores

Being 30 or more days late is typically considered a late payment. At the 30-day mark, most credit card companies will report your delinquency to the major consumer credit bureaus.

Since your payment history is among the most heavily weighted factors in your credit scores — typically making up about 35% — you may see a significant impact to your scores, and the record of your delinquency will show on your reports for seven years.

Playing it safe

For all the reasons listed above, it’s crucial to know your monthly due date and the minimum amount due. Setting a calendar reminder for yourself or setting up automatic bill pay can help you avoid taking an unnecessary hit to your credit.

Planning to make your payment a couple of days before the due date is also a great way to make sure that you have time to address a problem if your payment doesn’t go through as planned.

Pay your full balance each month

In credit card lingo, the term “balance” refers to the amount of money you owe at any given time. Some people believe that carrying a balance over from one month to the next can help your credit, but that’s actually a myth.

Neale Godfrey, financial expert and CEO of Children’s Financial Network Inc., advises paying your credit card bills in full each month.

“Do not carry a balance and don’t spend to the limit of your credit line,” she says. According to Godfrey, “overspending and carrying a balance” is the most common pitfall for new credit card users.

Here’s why paying off your full balance every month is a good idea:

To avoid paying more in interest

Paying your full monthly balance helps you avoid unnecessary interest. It’s as simple as that.

When you carry a balance past your payment due date, the amount you owe accumulates interest. If you pay off your full balance instead, you can avoid throwing money away on these interest charges.

To build your credit

Carrying high balances on your credit cards can potentially hurt your credit scores. A major factor in your scores is your credit utilization ratio, which is the percentage of your total available credit that you’re using at any given time.

Say you have just two credit cards — one with a credit limit of $2,000 and the other with a limit of $1,000. Your total available credit is $3,000. If your total balance on those cards is $1,500, then you’re using half of your available credit. In other words, you have a credit utilization ratio of 50%.

In order to avoid hurting your credit scores, try not to let your overall credit utilization ratio go above 30%. So if you have a $3,000 limit, you’d want to avoid owing more than $1,000 at any given time.

Staying even lower than 30% is ideal, since this can mean seeing an additional positive impact to your scores.

To stay on top of your debt

Carrying over your monthly balances can lead to other financial problems.

“Once a person carries a balance,” says Godfrey, “it becomes more and more difficult to pay the credit card bill in full.”

Planning to pay off your whole balance each month can help you stay on top of your expenses and stop your debt from spiraling out of control by helping you keep interest payments down and your total debt load manageable.

Read your credit card statements and check your credit reports

A credit card statement is a summary of the monthly activity on your credit account. You can typically review it via your credit card’s mobile app or your online account. You can also get paper statements in the mail if you prefer that.

Each statement includes information such as your previous account balance and any fees that have been assessed on your account.

Seems pretty straightforward, right? Well, not always. Reviewing your credit card statement gives you a chance to see if there are any errors, such as a mistaken or suspicious charge. This could include things like a purchase made at a store you’ve never shopped at or charges made in a city you haven’t recently visited.

You should also review your statements to check for other issues, like a payment that didn’t go through. If your credit company reports that you’ve missed a payment, it could have a significant negative impact on your credit scores.

The Federal Trade Commission recommends saving your receipts so you can check for any inconsistencies on your credit card statements and more easily resolve them.

Sometimes problems on your credit card statements are the precursors to problems on your credit reports, so it’s better to identify and deal with issues early before they begin to affect your credit reports and scores.

If incorrect information has somehow made its way onto your credit reports, Credit Karma can help. Credit Karma’s Direct Dispute™ tool allows you to quickly challenge errors on your TransUnion® credit report.

The truth is, mistakes happen. It’s important not only to read all of your statements and monitor your credit reports, but also to address errors quickly. If you fail to contest them in a timely manner, you could end up being liable.

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What do I do about unauthorized charges on my credit card?

While the idea of being victim to credit card fraud is scary, most credit card companies offer safeguards designed to help protect you.

It’s important to inform your credit card company as soon as you notice unauthorized charges. You should also check your other accounts to see if there may be a bigger problem.

You can file a police report if necessary, and you may want to contact the major credit bureaus to alert them and request a credit freeze.

Changing your passwords and monitoring your accounts can help reduce your risk of credit card fraud moving forward.

Understand your card’s terms

Understanding your credit card’s terms, such as how your interest rate is calculated and when your payment is due, can help you make the wisest use of your card.

Yes, reading all of that fine print can seem a bit overwhelming. To make it a little more digestible, here are some things to look out for:

Your credit limit

Every credit card comes with a credit limit. A credit limit is the maximum balance you’re allowed to carry on a card at any given time. If you attempt to charge more than your limit, your transaction may be declined, or you could be charged a fee.

For new credit card users, or those with little or no credit, credit card limits are often quite low. Make sure you know exactly what your credit limit is so you can steer clear of charging too much.

Fees

Each credit card comes with its own set of fees that you’ll want to be aware of. These can include, but are not limited to:

  • Annual fee
  • Foreign transaction fee
  • Late payment fee
  • Balance transfer fee
  • Cash advance fee
  • Returned payment fee

Some credit cards may also come with a 0% intro APR offer, which allows you a period during which you won’t be charged interest on purchases or balance transfers. But be careful. Getting into the habit of carrying a balance could become costly once your regular interest rate kicks in.

It’s also a good idea to understand how your interest rates are calculated in the first place. Most credit card companies charge interest on a daily basis, which is another great reason to keep your balances low and pay them off as quickly as possible.

Protect your credit information

As soon as you open your first credit card, it’s important to adopt some simple habits that will help you protect your account.

The FTC advises credit card users to always be cautious about disclosing credit card information, especially over the phone or online. Also, never share your account number unless you know that you’re dealing with a reputable (and secure) company.

For additional security, you can use a credit monitoring service to alert you when unusual activity has taken place with your card. Credit Karma offers free credit monitoring that notifies you of important changes on your TransUnion® or Equifax® reports.

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What’s next?

Some people put off getting their first credit card until they need to quickly build up their scores to qualify for an apartment or a loan. That strategy can be problematic since building a good credit history takes time. Starting sooner means your credit is more likely to be in order when you need it.

There’s a lot to learn if you want to use your first credit card responsibly. But with discipline, most folks can use a credit card to help build up good credit history.

Godfrey offers this tip to new credit card users: “It’s easy to get into trouble with a credit card, so stick with one card and manage the process of paying off the bill in full and on time before you sign on for additional cards.”

Check out the following Credit Karma articles to continue your credit-building journey:


About the author: Sarah C. Brady is a San Francisco-based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Mo… Read more.