Getting your first credit card can feel like an exciting step, as well as a good way to acquire things that might otherwise have been beyond your budget. In fact, almost 47% of Americans have at least one credit card. Once you’ve figured out how to get your first credit card, you’ll want to make sure to avoid falling into any bad financial habits. Read on for four key mistakes to avoid when using your new card. Not Paying Your Balance Each MonthYour credit card provider will have a minimum amount you need to repay each month, but you should always try to repay the balance in full every month. This way, you’ll avoid accumulating a large amount of debt and you also won’t pay interest. In general, younger people are better at paying off their balances regularly: 62% of those under 34 say they clear their credit card balances each month, as opposed to just 48% of those aged over 35. Be one of the people who pays their monthly balance and you’ll get all the perks of a credit card (such as an ideal credit score and potential points or cashback) without the drawbacks. Paying Your Bills LateIf you aren’t used to paying monthly bills, it can be easy to forget to pay on time. Be aware that late payments come with charges that soon rack up — the average maximum fee for a one-time late payment is $36, or $39 if you miss two payments within six months. Late payments can also have a negative impact on your credit score if you are more than 30 days behind. If you are more than 60 days late, your card provider could also increase your interest rates to the highest bracket. You can set up your account to autopay, but make sure you have enough money in your debit account or you may incur a fee. If you prefer manual payments, set a reminder on your phone, write it on your calendar or do whatever you need to do to make sure you pay on time. Signing Up for Multiple CardsOnce you’ve figured out the best first credit card for you and have reaped a few rewards, it might be tempting to sign up for more cards. In fact, the average American has 2.4 credit cards. If you are new to credit, though, it’s important to wait a while before applying for more credit cards, store cards or loans. Applying for multiple lines of credit will temporarily have a negative effect on your credit score, which can lead to higher interest rates, loan denials, and even difficulties with future rental or mortgage applications. Having multiple credit cards and loans is also a surefire way to rack up debts that are beyond your means to pay off. Stick with one card until you get to grips with spending wisely and repaying promptly. Spending to Your Credit LimitYour first credit card is unlikely to have a large credit limit, but this doesn’t mean it’s okay to max it out. As well as getting into debt that may take time to pay back, it’s also potentially damaging for your credit score to spend above 30% of your credit limit. The amount of your available credit limit that you spend is known as your credit utilization, and it’s a key factor in determining your overall credit score. You’ll also risk fees for going over the limit, and your provider could increase your interest rate. Using a credit card well is a key part of learning how to start building credit from age 18 onward, but it’s also important to monitor your credit score. This doesn’t have to be a chore — in fact, SmartCredit can help you control your future credit score in a fun and engaging way, using a gamified dashboard to track fluctuations in your score. If you need to take action on a negative item for any reason, SmartCredit can help with a 120-day action plan* to turn things around. Avoid these mistakes when using your first credit card and you will be well on the way to a healthy future credit score. *This feature unlocks if you have negative credit data. References
The post 4 Mistakes to Avoid When Getting Your First Credit Card appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2020/10/22/getting-your-first-credit-card/
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October 2020
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