Credit Cards for Beginners: 8 Things to Know Before Your First Card

1. You Can Build Credit Without Paying Interest

Getting a credit card and using it regularly is a strong strategy for establishing credit—and you don't have to go into debt or pay interest to reap the benefits.

In fact, a safe way to build credit with a credit card is to use it only for small, regular purchases you already make. For example, you could use your new credit card to pay your phone bill. Then, pay off your credit card balance before the end of your grace period (more on this below). You'll avoid going into debt and paying interest, while building a record of on-time payments and responsible credit usage.

2. Late Payments Can Damage Your Credit

Your payment history has the single biggest impact on your credit score, so it's crucial to prioritize paying your credit card bill on time each month. If your payment is:

• Between one and 29 days late: Your credit card issuer may charge you a late fee.
• 30 or more days late: Your credit card issuer may report your debt as delinquent to the credit bureaus. When that happens, your credit score will take a hit. Late payments remain on your credit report for seven years.

A main goal for getting your first credit card should be to establish good credit, so you want to avoid any negative payment activity appearing on your credit report. To avoid late payments, be sure you're budgeting for your credit card bill and consider setting up autopay.

Learn more >> What Affects Your Credit Scores?

3. High Balances May Hurt Your Credit Score

Did you know that racking up a large balance has a negative impact on your credit score? Your credit utilization ratio measures how much credit card debt you have as a percentage of your total available credit. For example, if you have a $1,000 credit limit and a balance of $200, your utilization ratio is 20%.

As your credit utilization rate tops 30%, its negative effect on your credit can become more pronounced. The general wisdom when it comes to credit utilization is the lower, the better.

4. Your Grace Period Can Help You Save Money

A credit card's grace period is the time between the last day of its billing cycle and the payment due date. Paying off your entire statement balance during the grace period helps you avoid accruing any interest on your purchases.

If you carry a balance past your card's due date, you lose your grace period and begin accruing interest on your current balance and any new purchases right away. To get your grace period back, you'll need to pay off your entire balance. Depending on the credit card issuer, your grace period may not be restored for one or two billing cycles. During that time, you may want to hold off on using your credit card to avoid being charged any interest.

Learn more >> What Happens When You Lose Your Credit Card Grace Period?

5. There Are Credit Cards Designed for Building Credit

If you're brand new to credit, you'll most likely qualify for cards specifically designed for low-credit borrowers.

A secured credit card is typically easier to qualify for because it requires a deposit, which often serves as your credit limit. By using your secured card responsibly and paying on time, you may graduate to an unsecured card—and get your deposit back.

Learn more >> How to Get a Secured Credit Card

6. Credit Cards Offer Fraud Protection

Beyond the potential for building credit, there's another notable credit card benefit new borrowers should know about: Credit cards offer better fraud protection than other payment methods, such as debit cards.

By law, your credit card issuer must limit your liability to no more than $50 if you report the fraud within two days of discovering it. Many credit cards have even better protection, offering cardholders zero liability for unauthorized transactions.

Learn more >> How to Get the Best Credit Card Fraud Protection

7. Take Time to Read Your Cardholder Agreement

A cardholder agreement is a legal document that details the terms for a credit card. Within it, you'll find important information, such as:

• Your credit card's APR
• Your credit limit
• How your minimum payments are calculated
• Your billing due date
• Any card fees, including annual fees or penalties for paying late
• Any special card features, such as credit card rewards or a promotional APR

Read through your cardholder agreement carefully to ensure you understand its terms and responsibilities.

8. Avoid Too Many Credit Card Applications

Getting a new credit card is exciting, and it's easy to get swept up in the many credit card options you may come across. But before you apply for a card, hit pause and spend time doing some more research.

Multiple credit card applications in a short span of time can signal risk to lenders, which could make it more difficult to qualify for credit when you need it. Credit applications often lead to hard inquiries on your credit report, which may cause a temporary dip in your credit score.

Fortunately, you can limit inquiries by reviewing credit cards matched to your credit profile and checking to see if you're preapproved before you apply. If you're new to credit, checking out the best credit cards for building credit is a good place to start.

Learn more >> How Multiple Credit Applications Affect Your Credit Score

The Bottom Line

Your first credit card can pave the way to more credit opportunities. Focusing on good credit management can help you get there. Making on-time payments and keeping your balance low are both key moves.

Be sure you're monitoring your credit to see how your score changes over time. After you've built up your credit score, you may be able to branch out into cards with premium features, such as cash back credit cards.