When most people hear the words ‘credit card’ they cringe. Either they owe their credit card company a balance or they just finished digging themselves out of credit card debt.
Even if they have never used a credit card before, people may still cringe after hearing all the horror stories about their friends sinking into debt with credit cards and tarnishing their credit score. While there are quick credit score repair services to consider, you want to make sure you’re actively monitoring your score and credit card usage. The whole fear about credit cards is only a result of people not really understanding how they work and how to use them.
I’ll admit, I was under the whole don’t-get-a-credit-card spell when I turned 18 so I refused to open an account of any sort and maybe that was a good thing. In 2013, the Market Watch, a Wall Street Journal publication, supported research from a direct study that indicated Congress didn’t believe young people under 21 were capable of being responsible enough to yield a credit card.
The article went on to address “the popular notion during the depths of the recession in 2008 and 2009 that college-aged people were irresponsible spenders lured by free pizzas and T-shirts to take on credit-card debt that would trash their credit history and financial lives.”
Quite frankly I couldn’t agree more. At 18 we are still a little too young to realize the purpose of a credit card and at that age it’s easy to make the mistake of thinking Capital One is just throwing us free money that we won’t have to worry about until much later.
But then I moved out of my mother’s house and I wanted furniture. Can’t finance furniture without credit. In my case I couldn’t even finance a measely couch. In fact, there were a lot of things I couldn’t do without credit and I got tired of it holding me back.
So at 21 I decided to break all the rules my ‘cash only’ friends advised me of and open my first credit card account with First Premier Bank. Let me tell you, First Premier is pretty crappy (in my opinion) and they don’t offer any special awards to card holders like some of the best rewards credit cards that are available currently offer. The interest rate is sky high, but opening the account was the best thing I have done to help my credit as a young person. Let me tell you why.
I committed to the purpose of credit
It’s crucial to understand that credit is not just a pay advance that allows you the opportunity to splurge at the store and make all types of outlandish purchases.
Your credit reflects your proven ability to borrow money and be able to repay it in a timely fashion. Your credit score, demonstrates your trustworthiness to lenders when paying back a loan. Once you realize that and you can commit to the sole purpose of credit and denounce your uncontrollable shopping habits, you’re ready for a card.
Be honest, Limit Amount of Accounts
When I opened my account I had to be honest about how much I knew I could handle. Credit bureaus like to see many accounts open. But in my case, I thought it was sufficient enough to just have one at the time.
I could’ve signed up for a few fancy department store cards but that wouldn’t be staying true to my commitment of slowly establishing a great credit score. A Mapping Your Future article confirms that having one card when starting out will help you better manage your spending.
Having several accounts could actually hurt your credit if you can’t keep up with all the payments and they start to accumulate interest. Plus, if you apply for a lot of credit cards and get denied the hard credit inquiries will definitely hurt your score.
Now that I’ve got the hang of this whole credit thing I actually do have a few cards and a diversified range of credit and let me tell you, it all helps.
Carefully Monitor Utilization
Monitoring your credit is crucial if you are trying to build it over time. CreditKarma.com is a free website that allows you to track your spending and monitor your credit and you can login to their system as much as you want. They also pull credit scores from TansUnion and Experian.
Don’t ever make the mistake of maxing your credit card out. For example, if your limit is $1000 a month you shouldn’t be spending $1000 that month or for any month. I always try to only utilize 20% or less of my limit. Credit Karma’s blog states that 30% utilization each month would be the maximum. Anything less than that will help increase your credit score. If you utilize more, your score will drop and you will seem like a liability who is depending heavily on your entire credit limit every month.
Other Common Credit Card Mistakes to Avoid
- Not checking your statement each month to identify any discrepancies early on
- Forgetting to pay you bill each month and not knowing when your billing cycle ends
- Not reading the terms and conditions carefully
- Carrying a balance each month
Stick With It
Credit is not built overnight and it can take years to establish a good score and enjoy the benefits of it (low interest rates). I’ve made a goal to stick to my monthly payments of paying my entire balance in full so I have a perfect payment history.
Unfortunately I still plan to keep the First Premier account open because when you close accounts it can hurt your credit score. The never ending cycle of credit is to always have an open account and to always be paying something, even if it’s only a small payment.
What was your first credit card and did you ever make any of these mistakes? Please share your stories below!
STOP Living Paycheck to Paycheck
You can't break free from the status quo when you're living like everyone else. Get one of the free spreadsheet tools I used to pay off $35,000 of debt quickly, build an emergency fund, and break the paycheck to paycheck cycle.