One of the highlights of turning the age of majority is being eligible for your first credit card. It’s a thrill, but it’s also a responsibility that’s taken too lightly by most teenagers—and having access to a credit card can be dangerous to many for this reason.
It’s a mistake to think that credit means you can afford everything. Impulsivity has to be curbed for a cardholder to avoid the pitfalls of credit. Credit cards cannot be used for instant gratification or spontaneous buying.
When credit cards are used responsibly, they can be very useful tools to build good credit. The earlier you get one, the better your credit rating will be when it comes time to apply for a loan for a car, a mortgage, an apartment, and sometimes even a job. If you wait until your mid-twenties to start building credit, it will be difficult to access other forms of credit. So how can first-time credit card holders—and especially teens—learn how to use their cards responsibly, putting themselves on the path towards financial stability instead of exorbitant debt? Whether you’re a first-time credit card holder or a parent of one, you’ll find the following tips useful.
1. Understand your spending habits.
The first step towards responsible use of a credit card is understanding how much you are already spending. It’s easier than ever to track monthly income and expenses, using applications or spreadsheet templates. Identify whether your spending habits are sustainable, and where you can cut costs. This will also help you to understand how much you should be charging to your credit card in a month, and what you can reasonably pay back.
2. What will you use it for?
Decide what you will use your credit card for and identify the right credit card for you. Many credit cards have different conditions. Some come with rewards or a sign-up bonus. If you would like to save money to travel, you might choose a credit card with travel rewards. If you are confident that you’ll be able to pay off your bill each money and you would like to save money on groceries or gas, find a rewards program that fits your shopping habits.
3. If you can’t afford it, don’t buy it.
First-time credit card holders may be given credit limits ranging from $500 to $2,000. Reaching the limit within any given month is usually not a good idea, and opting-in to over-limit fees is an even worse idea. Try your best to treat your credit card as you would a debit card or cash, with some added conveniences—such as being able to use it online, for booking purposes, or to get rewards. If you really don’t have enough money, you shouldn’t be buying something.
4. Monitor your activity and pay your card off in full each month.
The simplest way to make sure you’re not overspending is to monitor your card activity as often as possible. Sign up for email or text alerts notifying you when the card is used. Identity theft is a concern, so make sure that every purchase on your statement was made by you. Finally, pay your balance each month, otherwise you’ll soon be paying excessive interest on your balance.