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Your First Credit Card: Financial Freedom Doesn't Mean Maxing Out Your Cards for the Latest iPhone
Finally, you have turned 18 and you have your first credit card! Financial freedom is more than maxing out cards for the latest gadget.You have turned 18 or maybe you have just walked onto the university campus when you are hit by a barrage of credit card company reps trying to butter you up for their credit card with some seriously sweet swag. While you may have a tough time turning away the free plastic cups, nifty key chains, or just the dozens of offers that flood your mailbox, using a credit card is a decision that can impact your finances until the day you die.
Choosing a credit card
There are literally hundreds of different cards that you can choose from. Some offer airline miles, while others may offer you points towards merchandise or free gasoline. One of my first credit cards was a Star Wars card which offered points towards Star Wars memorabilia and had a photo of Yoda on the card. Yes, this definitely was a card I applied for in college, and except for one major computer purchase, it has sat unused in my wallet for years.
Here are some tips towards choosing that first credit card:
1) Choose a card with a low interest rate. Though it is difficult to get a lower interest rate until you have established some credit history, try to aim for a percentage closer to 9.99% fixed or less. Do not even sign onto any credit cards that offer above 16.99%, whatever they try to sell you. Credit card companies are desperate enough for good customers that you do not need to settle for credit card sharking.
2) Choose a card that gives you a monetary percentage back for purchases. The credit card I use gives me 5% back on all grocery and gas purchases, as well as 1% back on all purchases. That means that a few times a year, I receive a check from the credit card company. Although there are many credit cards out there with air miles, unless you plan to spend thousands of dollars in credit cards (usually not a wise decision unless you are incredibly disciplined), you will not see the returns on your purchases.
3) Choose a card accepted at most locations. Joe and Jim's Credit Card may be acceptable at the corner grocery store, but it will not help you at all if you plan to travel outside the city limits.
4) Choose a card with reliable customer service. Ask around as to which cards were quick to answer the phone. This is very important if you have fraudulent charges appear on your statement, if you never receive your statement in the mail, or if you have any questions regarding your account.There can only be one
Once you have narrowed down the credit cards based on the above criteria, and the advice of financially responsible people in your life (parents?), then decide on two credit cards. One as the main credit card to use for all purchases, and the other as an emergency card. By the way, this includes any store cards. Do not become a card-carrying member of local retail stores. It is easier to overspend if the spending is spread over several cards. Simplicity is better.
Pay off your bill every month, no matter how painful
Credit card companies make money whenever you do not pay off your entire bill. That $50 dinner you spent on your date can easily become $150 if you let it slide for several months. Instead, pay your bill off in entirety every month, no matter how painful. After a few harrowing bills, you will learn to curb your spending habits. This is also why it is very important to limit yourself to one credit card.
Highlight unnecessary expenses
Every month, highlight unnecessary expenses on your billing statement. I found for myself, for example, that I was spending an additional $75 a month just by going to Wal-Mart to buy little "necessities". What did I do? Instead of going to Wal-Mart every week, I went once a month and cut that expense down to $20, where it was supposed to be.
Always pay your bills
Why does it matter if you don't pay off your credit cards? After all, the credit card companies have insurance to cover losses, and they make such a massive amount of money, a few thousand dollars will not impact them. Well, although that is true, falling behind on a payment is reflected on your credit report. If you have a bad score on your credit report, that means that you will always end up paying higher interest on loans and credit cards, will have a much harder time renting an apartment or getting a home mortgage, and will most likely be forced to pay higher down payments on everything from cars to houses. Unfortunately, bad debt can follow you around for years and years. Always keep this in mind when you purchase with a credit card.
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