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8 Things to Know Before Getting Your First Credit Card 

Getting your first credit card is an important financial milestone. Used wisely, credit cards can help raise your credit score, lower interest charges, and make purchases more convenient. But, used carelessly, they can lead to heavy financial burdens.

Read on for 8 important things we think you should know before applying for and using your first credit card.

A credit card isn’t free money.

To a teenager, a credit card might feel like a never-ending source of money, but we all know that’s not the case. When you make purchases with a credit card, you’re borrowing money that you’re agreeing to pay back. If you can’t afford that new pair of shoes today, it’s unlikely you’ll be able to afford them later. A good rule of thumb to follow – don’t charge anything you can’t pay back now.

The longer it takes you to pay off your bill, the more you’re spending.

Making just the minimum monthly payments could mean you’re paying more in interest. For example if you bought a shirt, would you rather pay $25 for it now, or $29 for it later? Minimum payments can make even reasonable purchases more expensive over time. There’s more value in paying off your card in full, or at least paying more than the minimum monthly payment.

There is an age requirement

You can apply for a credit card in your own name when you are 18 years old. If you’re younger than 21, you’ll need to prove that you have an independent income source. In lieu of that, you’ll need a co-signer with good credit who meets the age requirement.

Read the fine print.

A credit card is essentially a contract between you and your lender. But that contract has a lot of pages, with a lot of words your may not be familiar with. Always ask for advice from your parents and ask them to help you walk through the terminology you may find in a credit card application or agreement. That teeny, tiny print holds the ins and outs of the card. Knowing those can help them avoid incurring any fees that may be associated with the card.

A credit card is not an emergency fund

First, if you use a credit card in an emergency, that bill is still going to arrive. If you’ve paid for something that you can’t actually afford, you’re not going to be able to pay off the card. You’ll be carrying a balance, and the interest will keep devouring your money while you get nothing in return.

Second, there are a lot of emergencies where credit cards don’t help. Theft is one. Identity theft is another. What do you do in those emergencies? You should strive to have a cash emergency fund sitting in a savings account at a bank where you can access it if you need it.

When you don’t pay on time, there are big consequences

What happens if you just don’t pay your credit card bill? First and foremost, you’ll wind up with some nasty marks on your credit report that will last for up to seven years. Not only will that make it much more difficult to get any kind of loan or credit card going forward, but it can also raise your insurance rates, make it harder to get an apartment, and even hurt you in a job search. 

All of those things are made much easier if you have good credit, and not paying your bill means that you have bad credit.

Not only that, the company will hound you for years and eventually turn the debt over to a collection agency, which will also hound you for years. You’ll get phone calls and letters using all kinds of strategies to get you to pay.

While it seems like an immediate solution to your problem is to just throw the credit card bills in the trash, they don’t just disappear. The problem festers, and it builds into other consequences that can hurt your career and other areas of your life. 

Never lend your credit card or credit card number

 Also, credit card companies will never ask for your account information.  If someone calls and asks for your credit card information, hang up the phone and dial the 1800 number on the back of the credit card.  If they need something, they will help you through that number.

Stick to a budget

Figure out how much you can afford to spend each month and try keep your charges from exceeding that amount. If you do have to carry a balance between months at some point, make a plan for paying off what you owe as quickly as possible.

Ask yourself if you are ready for a credit card

Being ready for a credit card isn’t about age. It’s about being prepared to use the card responsibly. To know whether you’re ready to use a credit card, look at your debit card spending. “If you understand that you have a specific amount of money in your account and you don’t go over that amount, you’re getting the concepts down about how to use plastic. On the other hand, if your card is getting declined or you’re being hit with overage charges from your bank, you probably need more practice.

 

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