Your first credit card can either set you on the path to building a good credit history or damage your credit standing for years to come, and it can either save or cost you money, depending on how you use it. That’s why it’s so important to avoid several big mistakes that people make with their first credit card.
Trying to Bypass Starter Credit Cards When You Are New to Credit
Starter credit cards are designed specifically to help people with limited or no credit history begin to build credit. They tend not to have overly flashy rewards or benefits, and so they may not seem like the most attractive cards. However, using a starter credit card responsibly is the key to qualifying for the best credit cards overall in the future.
Plus, if you apply for a non-starter credit card with limited or no credit, you are unlikely to get approved. If you are rejected, you will have put a hard inquiry on your credit report for nothing. This could make it even harder to get approved the next time you apply.
Not Getting a Student Credit Card if You’re in School
Students are in the unique position of being able to apply for student credit cards. These cards usually offer far better terms and benefits than other unsecured credit cards for people with limited or no credit. Some even provide quite lucrative rewards. The best part is that student credit cards typically don’t require any credit history to qualify.
Thinking Cards Without Rewards Aren’t Any Good
In general, rewards are among the most sought-after credit card features, and they are beneficial because they save cardholders money on purchases. However, first-time credit cards are not likely to offer many – if any – rewards. First-time cards that do offer rewards are more likely to charge an annual fee than those with no rewards.
Credit cards with no rewards are not bad, though, particularly for newcomers. In fact, a card with no rewards and no annual fee could potentially provide more savings than a card with rewards and a fee. That’s especially true for light-spenders who might not be able to earn enough rewards to offset the cost of a fee.
Besides, you should be using your first credit card primarily to build credit. Things like rewards can take a back seat until you have established a good credit history.
Submitting Too Many Applications at One Time
Each time you apply for a credit card, the issuer will do a hard pull of your credit, which will cause a slight drop in your credit score. This is typically only 5-10 points, but the damage gets larger when you have multiple hard pulls in a short time period. As a result, you should only submit one credit card application at a time.
If you’re able, you should wait six months to a year after one credit card application before submitting another. That means it’s important to choose the cards you apply for carefully, in order to maximize your approval odds. Unless you’ve been able to build credit another way prior to having a credit card, you should stick to cards that are targeted toward people with limited or no credit.
Failing to Pay Your Bill on Time and in Full Every Month
Since the main purpose of your first credit card is to build credit, you should not be financing purchases with it. Instead, you should strive to charge only what you can afford to pay off in full each month.
If you carry a balance between months, you will start to owe interest, which will be quite expensive. Your credit score will also increase more slowly than it would if you paid in full.
Ignoring Secured Credit Cards
Some people don’t like the idea of secured credit cards because you have to put up money as collateral in order to open them. However, the security deposit is 100% refundable when you close your account with a $0 balance.
In addition, secured credit cards give prospective first-time cardholders the best approval odds, and they usually have $0 annual fees. Some secured credit cards even give rewards, too.
Not Tracking Your Credit Score to See When You’re Ready for an Upgrade
Once you’ve used your first credit card responsibly for a while, you’ll want to upgrade to a card that offers better APRs, fees, benefits and rewards. You won’t know when it’s time to upgrade unless you’re actively tracking your credit score, though.
By joining WalletHub for free, you can get free daily updates to your credit score and report. You’ll also receive personalized advice on how you can improve.
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