credit cards

When it comes to being financially responsible, one of the most difficult things to do is building up your credit.  How do you build credit, especially when you’re younger, can also be difficult.  A credit card, when used correctly, can be a great tool to help you secure lower interest rates on a car or your first mortgage.  For example, when I bought my first house, my credit wasn’t great.  It wasn’t bad either, but I ended up having to pay a higher interest rate on that mortgage.  Again, it wasn’t large, but given that my credit score has improved, when I purchased my second house, the rate dropped.  It might not seem like a big thing, but half a percent can certainly make a big difference when you are trying to pay off such a large loan.

credit card

When Should You Get a Credit Card?

The minimum age to apply for a credit card is 18 years old.  However, if you decide to apply when you’re 21 or under, you’ll need a steady income or a parent/co-signer.  If you’re over 21, you will automatically be eligible to apply for the credit card.  If you don’t have a steady income, you should start with a secured credit card and after a year or two, you can switch to an unsecured card.  A secured credit card is funded by you, which means that the amount you deposit is your limit. An unsecured credit card is funded by the credit card company, which means that the set limit is based on your credit score and other factors. Start to consider your options while in college or right after graduation. The sooner you get a card, the better it is for your credit score.

credit card

Prioritize Your Options

You should look for a card with no annual fee.  If you’re a traveler, you should make sure that there are no foreign transaction fees as well.  You should first establish good credit card habits – such as keeping your spending to a limit and always paying on time.  Once you’re used to regularly paying off your card, you can start considering other options such as credit card rewards, cash back, miles or points.

woman with money

Don’t Overspend

This might seem obvious, it’s easy to do.  Take it from someone who knows this from experience.  Credit cards are a great way to build your credit, but they can also get you into trouble if you don’t keep track of your purchases.  Rule of thumb – if you don’t have the money in your account, don’t make the purchase.  It’s also important to track your spending relative to how much you make; never spend more than your income. You have the option to pay your card off throughout the month, too, so you know exactly how much money you have at any time. Setting a calendar reminder for when your bill is due each month could be a good way to help you pay your credit balance on time.

credit report

How to Maximize Your Credit Score

  • Pay your bills on time.
  • Keep the amount of the available credit you’re using as low as possible.  Try to stay under 30%.  To have a positive impact on your credit score, keep it under 10%.
  • Don’t apply for too many cards at once to see which one will approve you.  Each application will require a hard inquiry, which will bring your score down and hurt your chances of getting a card.