If you're a high school or college student, it's not a bad idea to start building your credit. Credit scores are boosted by the length and diversity of credit history, so a credit card is a great place to start. Here are some tips for how to select and manage your first credit card!
1. Research
Credit card companies offer a broad range of credit cards with enticements like travel rewards and low interest rates. Research what rewards you think you would benefit from most. I chose a Bank of America Cash Rewards card. A lot of companies have cash rewards, usually with two or three percent back on things like groceries and gas.
Start by taking a look at what types of credit cards your current bank is offering. You can also research other banks and retail merchant cards. If you do not have an amazing credit score, you may need to apply for a student credit card or a credit card which requires a minimum security deposit. A retail merchant credit card such as Target or (my personal favorite) J Crew is another option for establishing credit, but beware: retail merchants usually charge higher interest rates. Which brings me to my next tip...
2. Read between the lines
Read all the terms and conditions. Even that boring gibberish that you don't think you'll understand. That gibberish is meant to trick you.
Personal example: I received a credit card offer in the mail. The pamphlet said "Zero annual fees". Great! However, while reading that boring gibberish, I was suddenly aware of a paragraph that spoke of an "$80 annual membership fee, divided into monthly payments of $6.60 a month". Hmmm.... so zero annual fees.... but an annual fee divided into a monthly fee.... I caught you, Capital One.
3. Do not apply for many cards at the same time
Applying for too many cards in a short time span actually damages your credit score! Banks can see what cards you've applied for and when, and they may decline you for too many inquiries.
Start by applying to one or two, and wait to hear back from them. If you're denied, look at student or credit-building cards.
4. Only spend what you can afford
When that shiny new piece of plastic comes in the mail, you may be tempted to overspend. DONT.
Starting out, only spend what you know you can pay off right away. Interest rates or (god forbid) late payments can slowly make a big pile of crippling debt.
Until you can better budget or have higher and more dependable income, pay off your balance each month and save yourself stress and interest.
5. If you don't follow rule 4...
OK if you really needed that new Kate Spade bag that was on sale and you're not getting paid for two weeks but you just had to have it and couldn't risk that gorgeous bag selling out.... then please, for the love of all accessories: Make the minimum payment!! Most minimum payments are $10-$30, there is no excuse to miss a payment.
6. Remind yourself of monthly payments
For a foolproof way to never miss a payment, make sure you have a reminder. Many credit card companies will e-mail or text you when your payment is due, if you sign up for their alerts. Put notes in your phone, Lily Pulitzer agenda, Palm Pilot, whatever. Just don't forget.
If you follow these basic tips, you'll improve your credit score and be purchasing that dream home before you know it!
Picture source: http://stylemeswanky.blogspot.com/2011/01/clueless-muffs-and-five-question-friday.html
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