Are you applying for your first credit card? If so, then you have a unique opportunity to try and attempt to build your credit score.
Your credit score (also known as your FICO Score) is a number between 300 and 850 that lenders often use to assess your creditworthiness. The higher the score, the more likely a lender will approve you for credit cards, loans, and even mortgages. Additionally, lenders will sometimes offer you lower interest rates, which can save you thousands of dollars over time.
In this post, we’ll go through a few important tips for using your first credit card to establish a positive credit history right from the start.
Wondering how to get a credit card for the first time? Look for cards branded as “student credit cards.” Credit card companies specifically design these cards for applicants with little or no credit history. Plus, student cards typically have much more relaxed income and debt requirements.
If you have trouble getting approved for a credit card, then you can always try a secured credit card. These cards work just like regular credit cards, but they require a small upfront deposit that can be around $200 to $300 to serve as collateral. Because this deposit shifts some of the risk away from the credit card company, card issuers tend to approve a wider range of applicants for secured credit cards.
After activating your new card, the first thing you should do is set up automatic payments. This can easily be done through your online account’s dashboard or app.
Setting up auto-pay can help with two important prerequisites for credit card usage:
On-time payments can count for 35% of your FICO Score, so this one step alone will make a significant impact. Don’t forget to make sure that you always have enough money in your bank account to cover the payment every month.
Pro tip: If you hope to never pay one cent of interest, then setting your auto payment to pay the “statement balance in full” every month can help.
Your “credit utilization ratio” can account for 30% of your FICO score. This number references how much available credit you use. Ideally, your credit utilization should never exceed a third of your given credit limit.
To give you an example, if your credit limit is $5,000, then try and plan on keeping your balance below $1,500. In fact, the closer you can keep your balance to a 10% to 20% range, the better it can be for you.
Though it can be tempting to have more than one credit card on hand, you may want to wait about 12 months before trying to get another one. Often times when you apply for a credit card or loan, the lender might make what’s called a “hard inquiry” into your credit report. Too many of these hard inquiries can negatively affect your FICO Score.
Remember – it takes time to build your credit history. Be patient as you make your payments month after month and check your score every so often. Before you know it, your FICO Score could creep into the 700s and you can possibly be qualify for all the best financial products and interest rates.