Tips for first-time credit card users

This content is sponsored by PenFed Credit Union, federally insured by NCUA.

Credit cards can be a convenient way to make purchases and build your credit score. However, before setting out on a spending spree, there are many helpful tips that first-time credit card users should keep in mind to put them on a path toward credit card prosperity.

First, the basics: a credit card gives you access to a line of credit to borrow money up to a certain limit. That money can be used to make purchases and pay bills. Most credit cards also allow you to get cash advances, and many can be used to transfer and consolidate balances, often at a lower rate, from other credit card accounts, the experts at PenFed Credit Union said. Credit cards can be issued by a credit union, bank or other financial institution.

You can use a credit card to purchase or pay for just about anything. However, credit card issuers may have some restrictions.

“Generally, it’s best to only charge what you can afford to pay back quickly,” PenFed Credit Union’s experts said. “Using credit cards this way — basically as an interest-free, short-term loan — allows you to build your credit. It’s also the best way to prevent getting into substantial credit card debt.”

With this in mind, PenFed has some tips to help you through your first credit card experience.

Establish a spending limit

A credit card has a preset spending limit, also known as a “credit limit,” and as you make purchases your “available balance” is how much you can spend before reaching that limit. However, you should stay clear from reaching that limit.

“A good rule is to try to limit your credit utilization to 30% percent or less of your card’s available balance,” PenFed Credit Union’s experts said.

Charge within your means

Staying out of needless debt is an important part of credit card use. That means never charging something if you don’t have the money in your checking and savings accounts to cover the purchase. Using your credit card irresponsibly can damage your credit score, which can make it harder to secure a loan for things like a car or home in the future.

Advantages of credit vs. debit

So why not just use your debit card for spending? There are benefits to credit card use, such as establishing a good credit score, cashing in on rewards opportunities and special offers, and protecting yourself from fraud.

“With most credit cards, you are not responsible for paying unauthorized credit card transactions if your account is compromised or if your credit card is stolen, the fraudster never has access to the funds in your deposit or debit card account… so your money is always safe,” PenFed said.

These perks make credit cards a good option over debit card use.

Pay your bill on time and examine your statements

It’s vital to pay your bill on time every month. Not only does this help your credit score, but it also prevents you from having to pay costly late fees.

“Ideally, you should pay your balance in full each month. If you don’t pay off your credit card charges each month, you’ll have to pay interest on the balance. Left unchecked, interest charges can quickly grow and compound debt,” PenFed said.

If you fail to make a payment on time, some credit card companies may tack on a late fee of up to $40 in addition to regular interest charges. Other fees may also apply, PenFed noted.

An easy way to help pay bills on time is through automated payments. With most credit cards, you can authorize your credit card issuer to debit your payment from your bank account on a specific date each month – you can even choose the amount.

However, while automated payments are convenient it’s also important to review your statement each month to verify all the transaction are, in fact, ones that you made and you were charged the correct amount. If you spot an unauthorized purchase or discrepancy, contact your credit card issuer right away.

One of the best ways to stay on top of your credit card activity is to set up an online account or download the card’s mobile app, PenFed said. The freedom to view statements, activity and purchases anytime from your mobile device can help you spot errors or fraudulent activity even sooner.

Use your card

Make sure to actually use your card regularly. The experts at PenFed Credit Union say that always maintaining a $0 balance on your credit card won’t help your credit score. You should continue to use your credit card and manage the debt to help improve your credit score. In fact, not using your credit card enough and letting it become inactive can negatively impact your credit score!

“If nothing else, make small purchases on your credit card every few months (and pay them off in a timely manner) to keep the account active and prevent the issuer from closing it on you,” PenFed said.

Overall, getting a credit card can be a huge responsibility, but it can also set you up for financial success with some long-term purchases in your future.

“If you use your credit card wisely, spend sensibly, and pay your bill on time every time, you’ll reap rewards (sometimes in the literal sense) for months and years to come,” PenFed said.

Read more about credit cards on PenFed Credit Union’s website. PenFed Credit Union is federally insured by NCUA.

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