Five pitfalls to steer clear of when obtaining your first credit card

When used wisely, credit cards can significantly enhance your life. A properly managed card can help you establish a strong credit history, provide attractive welcome bonuses, grant consumer protections, and allow you to explore the globe through points and miles accumulation.

However, even with numerous advantages, there are mistakes you should avoid when using credit cards. Luckily, you can learn from the experiences of others to sidestep these common missteps as you navigate your first credit card.

Here are five of the most frequent errors first-time credit card users make, along with advice on how to dodge these pitfalls yourself.

Making late payments

One of the most significant errors in managing your credit card is submitting your payment after the due date. Delayed payments can lead to a host of negative outcomes, such as incurring late fees and the card issuer raising your annual percentage rate to a penalty level.

If you miss a payment by 30 days or more, your credit card issuer might report your account as late to the credit bureaus: Equifax, TransUnion, and Experian. Late payments can stay on your credit report for up to seven years, potentially harming your credit score. Additionally, if you fall significantly behind, your card issuer may decide to close your account.

Failing to pay the full amount owed

Another mistake to steer clear of when getting your first credit card is failing to pay off the entire balance each month. Clearing your statement balance every billing cycle is one of TPG's 10 commandments of credit card rewards — and for good reason. This practice helps you avoid hefty interest charges and can also safeguard your credit score.

Your credit utilization ratio, which reflects the relationship between your credit limits and balances, significantly influences your credit score. A lower credit utilization ratio can lead to a better credit score. Regularly paying off your credit card balances can help you keep this ratio low, especially if you make payments multiple times a month or before your statement closing date when your issuer reports to the credit bureaus.

Overspending

To steer clear of credit card debt and ensure you can pay off your statement balance each month, it’s essential to manage your spending carefully. If you've primarily relied on cash and debit cards throughout your life, it may take some time to adapt to the nuances of using credit cards, particularly from a budgeting standpoint.

Unlike a debit card, you don't have immediate visibility on when your credit card balance exceeds your budget for the month. On the upside, various budgeting apps are available to help you monitor your spending, allowing you to reap the benefits of credit cards without falling into the trap of credit card debt.

Only making minimum payments

Whether you're a newcomer to credit cards or have been using them for years, only paying the minimum amount due on your credit card bill is a significant mistake to avoid. As of July 2023, the average interest rate for credit card accounts charging interest was over 22%, according to the Federal Reserve. This means that if you carry a balance from month to month, your debt could escalate rapidly.

Carrying credit card debt can incur hidden costs as well. You could end up paying hundreds or even thousands of dollars in extra interest over time due to revolving credit card debt, and there's a risk of harming your credit score. A lower credit score can result in higher interest rates on future loans and credit cards, making borrowing more expensive later on.

Getting a card without rewards

For those new to credit and working on establishing a solid credit score, qualifying for top-tier rewards credit cards can be a challenge. Banks typically look for an established credit history and a good credit score before approving applicants for premium rewards cards. However, there are many credit card options available for newcomers, often providing some level of rewards.

As you embark on your credit-building journey, it might be wise to explore mid-tier credit cards that offer lower annual fees and reasonable welcome bonuses. Still, the rewards you can accumulate from your daily spending can far exceed the benefits of using a debit card or cash for your transactions.

In summary

With a bit of preparation, you can easily steer clear of typical credit card pitfalls that may cost you money and hurt your credit score. When you feel ready to manage a credit card, it's wise to check your credit reports and scores before applying for new accounts. If you find any inaccuracies, make sure to dispute them with the relevant credit bureau.

Once you verify that your credit is in good standing, you can begin searching for the ideal credit card for you. After you open your first credit card account, refer back to these tips to ensure you manage it effectively and pave the way for stronger credit in the future.