Rules for the Road: Choosing and Using Your First Credit Card

/ BY / Credit 101

Getting your first credit card is almost as much a rite of passage as getting your drivers license. Your license represents the freedom to go wherever you want, whenever you want. Your first credit card represents the freedom to make purchases without having the cash in your pocket at that moment to pay for it.

But both driving and using a credit card can be dangerous if you don't pay attention and proceed carefully. Here are six tips that can help you safely navigate the credit card maze.

1. Think about why you want a credit card.

When you get into a car, you usually have a destination in mind and a good idea of how you're going to get there. If you're ready to get a credit card, it's important to understand why you want to use it-for emergencies, for gas purchases, for school expenses, etc.

It's even more important to plan how you're going to pay for the purchases you make.

2. Understand the new credit card rules.

Before you got your license, you had to pass a test demonstrating that you understood the rules of the road. While you don't have to take a test to prove you're credit worthy, it is important to understand what you're getting into when you're applying for a credit card.

Did you know, for example, that if you're under 21, you have to either show proof of enough income to make payments on your card or get a co-signer? If you don't have a regular income, you may want to talk with your parents, a guardian or some other responsible adult who will be willing to be your co-signer.

3. Shop around for the best deal.

If you've purchased a car to go with your new license, you probably did quite a bit of shopping around to find the best deal. Do the same when you're looking for a credit card; there are many credit cards designed for students and other first time credit card users. You can check out some of the offerings from Visa and Discover at the website.

If you've had a checking or savings account with a bank for a few years, ask if they offer a good credit card for a first-time user. Or consider a secured credit card, where you put money in an account that's equal to the credit limit on your card. The bank won't touch that account unless you fail to make your credit card payment, and if you do make payments regularly it will help build a good credit record.

Retail credit cards are another option. These are usually easier to get than bankcards, but have low credit limits coupled with high interest rates. Used properly, however, they can establish you as a good credit risk so you'll qualify for a bankcard.

4. Read credit card offers carefully-including all the fine print.

It's not fun to sit and read all the legalese, but you have to do it to understand all the terms of the credit card you're hoping to get.

Need help figuring out what it all means? The Federal Reserve has lots of good information about understanding a credit card offer.

5. Use your credit card each month, even for a few small purchases.

Steady usage helps build your credit record. For the best credit rating, charge no more than 25 to 30 percent of your card limit.

6. Pay off your balance each month.

If you have to charge more than you can pay off at the end of the billing cycle-if your car needs emergency (expensive) repairs, for example-try to make more than the minimum payments each month to get rid of the debt faster. Use online account access to schedule your bill payment in advance so you'll never miss a payment or have to pay a late fee.

Just as developing good driving habits will keep you safer on the road, learning to use your first credit card wisely will help you make a good start on the road to financial success.

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