Considering a Credit Card? Here’s What You Need to Get Started 

So many factors go into your financial health. From your monthly expenses to transportation and even climate-related events, every aspect of your life helps define your budget and progress toward long-term goals.

One component of your financial health is your credit. Credit can play a major part in how you access loans, qualify for particular interest rates, or even apply for housing. If you’re considering getting your first-ever credit card — or just want to refresh your knowledge — read on to learn more about successfully maintaining your credit and using it to support your financial health goals.

Understand How to Build Your Credit Score

According to the Consumer Financial Protection Bureau, a credit score is an indicator of how likely you are to pay your loans back on time based on information in your credit portfolio. And your credit score is determined by certain factors. As you get started with credit cards, it’s important to understand these factors. Here are the factors that contribute to your FICO credit score, to help remember them, remember that you can PLANT seeds for good credit. 

Payment History (35%) – Your payment history looks at how often you pay your loans and credit cards on time. This is the biggest factor in your credit score. To build your score over time, make note of when your payments are due and be sure to pay on time.

Length of History (15%) – The length of your credit history looks at how long you’ve had established credit. When you are getting started with your credit, there is no way to lengthen your credit history. But it is important as you grow credit to keep open your oldest credit source because this will help your credit score grow.

Amount Owed (30%) – Next to your payment history, the amount you owe on your credit is the next biggest factor in determining your credit score. Amount owed looks at how much you owe in relation to your credit limit. Ideally, you want to keep the amount of your credit that you use to 30% or less of your available credit. If you have a credit limit of $10,000 you want to keep your usage to $3,000 or less. It’s important to remember that you don’t have to use any of your credit to help build your score over time.

New Credit (10%)- Another factor that impacts your credit score is new credit. While it’s ok to take out loans or get a new credit card when you need one, you don’t want to open too many new lines of credit at one time. Only open new credit lines when you need them.

Types of Credit (10%) – The final element of the FICO credit score is types of credit. It considers the kinds of credit you have. Credit cards are what is known as revolving credit, and loans are installment credit. Having a mix of both contributes to your overall credit score.

Understanding these elements of your score can help you make a good start with credit cards and they can help you avoid challenges. As you use your credit card, track your score over time. This way, you can set goals that you want to build it to and watch it grow. You can monitor your credit score through your credit card company or free sites such as Credit Karma.

Find the Right Card for You

When you’re ready to get your first credit card, it can be tough to sort through all the options. But it’s important to choose the one that’s right for you. If possible, look for a credit card with no annual fee. While there are good cards with annual fees, when you’re getting started with credit cards, you don’t want to make it more complicated for yourself by having to account for additional expenses.

As you consider your choices, think about the benefits that you might want from a credit card. Some offer cash back rewards, others offer travel points or miles. No matter what you’re looking for, find a card with rewards that you’ll use. As you spend money on your card, you’ll earn the rewards associated with your card. Just be sure to not spend more on your card than you can afford just to earn points.

Work it into Your Budget

To continue growing your credit score, it’s important to pay off your card statements on time and in full whenever possible. The easiest way to do this is to build your credit card payments into your budget. As you start building credit, pick one or two recurring expenses from your budget to put on your credit card. Using expenses that are already in your budget ensures that you can pay the card off each month. It also keeps your credit usage below the 30% mark which will help you build up your credit score. 

Pay Your Credit Card Off When You Can

It can be tempting with credit cards to make the minimum payment. But with high interest rates, paying the minimum on a credit card can end up costing you more. If you can’t pay your full credit card statements, pay as much as you can each month until the bill is paid off. This will save you money on interest. It will also help you build your credit score by keeping your available credit high and your payment history in order.

Don’t Open Too Many Lines of Credit

When you’re ready to get started with credit cards, it can be tempting to open several credit cards at once for sign up bonuses and rewards. But, opening too many lines of credit at once not only affects your credit score: it can also make your credit card debt hard to manage. If you have multiple credit cards open, it can be difficult to keep track of what expenses you’ve put on each card, which can lead to overspending. To build your credit as you get started, open new lines of credit only when you need them. You should also start with one credit card to make sure you can manage it successfully.

Check Your Credit Report

In addition to tracking your credit score, it’s important to check your credit report annually. Your credit report is a complete file of any loans, bank accounts, and credit cards that you’ve ever had, so it’s important to make sure the information it contains stays accurate and complete. If you do find a problem, gather documentation and send it to the credit bureau to report and fix the error.

You can check your credit report for free through annualcreditreport.com. It’s important to note that there are other websites that might charge you for your credit report; remember that you can check your report for free.

Maintaining Your Credit Is All About Habits

So much of your personal financial success comes down to the habits that you build. And getting started with credit cards is no different. Do your research, keep your credit expenses in line with your budget, stay on top of your payments, and check your credit score and credit report on a regular basis. By upholding these actions, you’ll build strong habits for credit usage and repayment that will help you work toward your long-term financial health goals.