Use a Credit Card

Getting your first credit card is a major financial step. Used properly, credit cards offer a flexible way to cover unexpected expenses and build up a good financial reputation. However, used irresponsibly, credit cards can potentially lead to long-term debt and difficult financial situations, so it's important to understand but how to use a credit card and how not to use one. Luckily, most of this boils down to ordinary common sense!

Steps

Getting Your First Credit Card

1. Get a credit card from your bank or credit union. If you've never had a credit card before, it can be confusing to figure out where to start. A good first step is to visit the bank or credit union where you have a checking or savings account and ask the staff about the possibility of getting a credit card. Most local financial institutions will be willing to offer credit to responsible, qualified customers.
   • Note, however, that your eligibility for a credit card can be affected by the length (and quality) of your financial history. If, for instance, you're a young adult who's only had a savings account for a few months, you may not meet your bank's standards for a credit card. In this case, you may need to maintain your savings account for some time or settle for a special type of credit card called a secured credit card (see below.)
2. Get a credit card from a credit card company. A bank isn't the only place you can get a credit card — many credit cards are offered by companies that operate just like any other business. You are probably already familiar with some of these companies, like Mastercard, Discovery, etc. These sorts of companies offer a wide array of credit cards to many different kinds of customers, though, like banks, they will only issue them to customers that they believe are financially responsible enough to pay for them.
   • If you're in the market for one of these sorts of credit cards, consider consulting a Consumer Reports-style resource for more information — there is lots of reputable information online about which cards are good deals and which are not. Some sites, (like, for instance, Nerdwallet.com) even offer their own credit card ratings.
3. Get a credit card from a local business. Businesses in a wide variety of industries (including retail, travel, gasoline, and more) issue their own credit cards. Often, they will offer the chance to sign up for these credit cards when you make a purchase. Note, however, that store credit cards can often have high interest rates (the amount of money you need to pay back over time) and low credit limits (the total amount of money you are allowed to spend at once) compared to other types of credit cards.
   • One reason that store credit cards are sometimes attractive to customers is that they come with rewards. These may include a percentage off of a purchase being made, a 0% interest rate for a limited time, and ongoing bonuses based on the use of the card. For example, it's common for credit cards issued by airlines to accumulate "miles" with use. Once enough miles have been built up, they can be used for big discounts on plane tickets.
4. Be able to prove your financial responsibility. When you apply for a credit card, the bank or business issuing you the card wants to know that you'll be able to pay back any money you spend. To do this, they will check your credit history, which is made available to them by credit report agencies. This means that your financial history usually determines whether or not you'll be able to get a credit card. Some aspects of your financial history that may be analyzed include:
   • Loans (including mortgages) — have you paid these off on time, or have you been late or defaulted?
   • Rent — Have you been consistent about paying your rent on time? Note that only some landlords send your history to credit report companies.
   • Past credit cards — have you used previous cards responsibly and paid off your debt on time?
   • Major financial events — have you recently declared bankruptcy or been foreclosed on?
5. Be willing to settle for a secured credit card if you have a short history. If you're responsible with your money but you don't have much of a credit history, it may be difficult for you to prove that you're a good candidate for a normal credit card. However, it should usually be possible for you to get a special type of credit card known as a secured credit card. These work like ordinary credit cards, except that you must put down a deposit to get one. This makes the institution giving you the card feel much more comfortable about extending credit to you — if you can't pay back what you owe, the bank or business can always take the money out of your deposit.
   • Secured cards offer a way for people with very little credit history (or a bad credit history) to start building up a good history. After you've shown that you can use your secured card responsibly, you'll probably qualify for a normal credit card (or an unsecured card), which doesn't require a deposit.
6. Start making purchases (responsibly.) Congratulations — you now have a credit card. You can now start using it to make purchases almost anywhere — simply present it to the cashier at the time of purchase or swipe it like an ordinary debit card. Below are a few very basic tips for using your new card (for more detailed information on using your card responsibly, see the section below.)
   • You are only allowed to spend up to your card's credit limit (for a secured card, this is usually the amount of money in your deposit). Purchases that put you past this limit may be declined.
   • Spending with a credit card racks up a balance. After about a month, you'll start to get bills for this balance — you must pay at least the minimum payment designated on the bill (usually about 2% of your balance) or face penalties.
   • It is in your financial interest to pay your balance off as quickly as possible. Balance that you don't pay one month "rolls over" to the next month with interest — a sort of "fee" for not paying back your balance as quickly as possible. Your interest rate is a set percentage of your total balance which is agreed upon when you sign up for your card. Note that some cards offer 0% interest payments for a period of time after signing up.

Using Credit Cards Responsibly

1. Build your credit history with regular small purchases. In general, your strategy with your new credit card should be to make small purchases fairly regularly and pay them off immediately. This shows the institution that gave you the card that you can responsibly pay back your credit balances, which in turn boosts your credit history. Having a strong credit history is important — it can make it much easier to make important financial transactions in the future, including:
   • Getting a mortgage for a house.
   • Getting a loan for personal expenses.
   • Getting good deals on new credit cards.
2. Keep your balance low as possible. It may seem like the best way to build a good credit history is to spend lots of money with your credit card, then pay it all back and repeat this over and over again. In fact, consistently using lots of your available credit is a bad idea and can hurt your credit history. This signals to financial institutions that you have a hard time meeting your expenses with the money that's ordinarily in your bank account, so you have to rely on credit, which is, of course, someone else's money.
   • Most financial resources recommend spending no more than 70-75% of your available credit, though less than 30% is usually seen as preferable.
3. Avoid getting multiple cards at once. Just like spending too much money on credit cards can hurt your reputation with lenders, so too can opening lots of credit card accounts at the same time. This makes it look to lenders like you suddenly need lots of money that you can't get from your paycheck, which can make loaning to you seem like a risky idea.
   • In addition, the total number of credit cards you have (regardless of when you signed up for them) can affect your credit scores. Though many adults responsibly maintain more than one credit card, it's generally considered unwise to have more than about five.
4. Guard your credit information carefully. Credit cards aren't like debit cards. A number of cards are issued with PIN number technology, but you don't always need the PIN number to use them, often only a signature especially at independent merchants. Some vendors may ask to see an ID when you use a credit card, but many do not. For this reason, if your credit card gets into the wrong hands, someone else may be able to run up purchases and you'll be stuck with the bill. Thus, you'll want to be very careful to keep track of your credit cards (as well as any correspondence that contains information relevant to them, like your credit card number or the password to your online credit card account).
   • If you need to dispose of your credit card or any vulnerable credit card information, destroy it first. You can cut a credit card into pieces with ordinary scissors and shred or burn paper documents.
   • Report lost or stolen cards to the issuer immediately. If you're quick, the account may be able to be "frozen" before any fraudulent purchases are made.
   • Note that if a card is used without your permission, you can be held liable for up to $50. However, some cards offer fraud liability as low as $0.
5. Don't fall for exorbitant credit card offers. While most credit cards are perfectly safe when used responsibly, some can be more trouble (and money) than they're worth. Some cards may carry unfair hidden fees, others may charge outrageous interest rates, and some even use practices so unethical that the companies that issue them are subject to lawsuits. Don't let yourself get roped into a credit card scam. Always read your terms of use carefully and pay special attention to things like your credit limit, your interest rate, your yearly fee, and any other fees associated with the card.
   • For reference, according to recent data, the average interest rate on credit cards in America in 2012 was about 14-15%.

Exploring Optional Credit Card Features

1. Consider setting up automatic deductions for bills, etc. If you have regular expenses like utility bills, student loans, and so on, it's usually possible to set up automatic deductions with a credit card just like with a checking or savings account. Often, this can be done online — consult the website of the agency sending you bills for more information.
   • Keep in mind, though, that if you have these regular deductions scheduled, you'll need to take extra care to pay off your credit card in a timely fashion to avoid going over your credit limit.
2. Consider signing up for credit cards that offer rewards. As noted above, many credit card issuers try to entice potential new users by packaging rewards and signing bonuses with new cards. If you're in the market for a new credit card, consider getting one with an attractive reward package. Rewards can include:
   • Low or 0% interest for the first month, year, etc.
   • A percentage off of certain purchases
   • Reduced (or no) monthly/yearly fees
   • Credit towards certain rewards with each purchase (e.g., frequent flyer miles)
3. Consider asking for a larger credit limit. If after you've had your credit card for some time you find that you're willing to handle more responsibility, consider asking your card issuer to extend your line of credit. If you're in good standing, you may be approved for higher credit limit — note, however, that this can cause a temporary "dip" in your credit scores because it can look like you suddenly need extra money.
   • Keep in mind that the greater your line of credit, the more important it is to use your credit responsibly. Maxing out a generous line of credit is a serious mistake — the damage to your financial reputation (and the interest you'll start accruing) can be significant.
4. Cautiously consider overdraft protection policies. If you find that you need to use your credit card to make a single large expense that will put you over your credit limit, contact your card issuer regarding your overdraft options. If you're in good standing and have a history of responsible use, some credit card companies will agree to pay for a purchase that technically causes you to overdraft — spend more money than you are allowed. However, this usually costs extra money in the long run in the form of overdraft fees.
   • In addition, federal law requires credit card issuers to obtain your explicit consent before they consider paying for any overdraft purchasers. This is known as "opting in." To be clear, your credit card issuer will not cover overdrafts until you opt in and may not cover all overdrafts after you do opt in.

Related Articles

• Use a Credit Card as a Debit Card
• Cut Credit Card Debt
• Choose Your First Credit Card
• Maintain Good Credit
• Get a Loan Even With Bad Credit

Sources and Citations

See also

• Check the Balance of a Debit Card
• Turn in a Lost Credit Card
• Cancel a Credit Card
• Activate Your Atm Card
• Use a Credit Card Payoff Calculator
• Use a Credit Card as a Debit Card
• Use a Credit Card System
• Transfer a Visa Gift Card Balance to Your Bank Account with Square
• Add Money to PayPal
• Use a Debit Card

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