Most young people don’t want to apply for a credit card because they are afraid it will put them deep into debt. And indeed, this does happen with a lot of youngsters. But if you are at a point in your life where you feel like you are making smart financial decisions and have quite a bit of stability, it’s important that you start building credit.
Here are five credit card usage basics for newbies.
Apply for your first card at a credit union. Oftentimes, it can be very difficult to get approved for your first credit card. Furthermore, if you are applying for a lot of different cards at the same time, you could start damaging your credit before you’ve even started building it. That’s why you want to apply with a credit union. They often have special programs that offer very small lines of credit for people who are just getting started.
Don’t max out. The worst thing you can do once you have a line of credit is max out your credit limit. Many people don’t know this, but if you spend more than 50% of your credit limit, the credit card companies will consider you maxed out and you won’t be able to build credit as fast. Ideally, you want to keep your spending at 20% or less. If possible, go for about 10% and you will be golden.
Always pay your bills in full. In the past, a lot of people recommended paying off most of your credit card bill, but not all of it. The theory was that if you’re paying a little bit of interest to the credit card company, they’ll reward you by boosting your score a little bit faster. However these days, most experts, like the ones at Finance Globe, suggest that you always pay your bill in full so that you don’t have to waste money on interest, and your score will build just as fast. You just don’t want to pay your bill off before your statement goes through, otherwise, it might not register to the credit bureaus that you’ve spent any money on the card at all.
Don’t apply for too many cards at once. Every time you apply for a line of credit, or have your credit checked by someone like a property manager or wireless carrier, your score will be affected. Sometimes people will only perform a soft check, which tells them your credit score, but doesn’t give them your full report. However, when you apply for a line of credit with anyone, they will usually perform a full credit check, which will definitely affect your score if you apply too many times within a short period of time. If you are trying to build credit, it’s best to wait at least 6-12 months between applications, so as to not destroy what little credit you’ve already built.
Keep your account open. Even if you don’t want to use a credit card anymore, it’s important not to close the line. Closed lines of credit look bad to the credit bureaus, so it’s best just to hold on to them. Ideally, you want to cycle through the cards that you have every few months – alternating between which card you use as your primary credit card, and which ones you ignore.