While it’s true that many 18-to-24-year-olds regularly overspend, it’s also true that many young adults try hard to avoid debt — especially credit card debt. Liz Weston in a MSN Money article outlines the reasons young people hate credit cards: they don’t want the temptation to overspend and have seen credit card debt wreck the lives of their parents and other adults.
While these are good reasons to use credit cards wisely, they’re not good reasons to avoid using credit cards altogether.
In fact, there are plenty of great reasons to use credit cards regularly. They help build your credit score so that some day you can buy a car or a home. They’re safer to use, especially online, than debit cards, and they can net you some pretty great rewards.
The key is to use credit cards responsibly. And that responsibility starts well before you swipe that shiny plastic for the first time. It starts by choosing the best first credit card for your situation. Here’s how:
1. Know What you Need
The first step to choosing any credit card is to understand what you need. The world of credit cards offers a surprisingly huge variety of options. Some cards are better for everyday use, while others are great for making a one-time large purchase. Some offer rewards for buying gas, others for spending on travel.
Right now, you’re probably not going to worry much about the card’s rewards. Most of the high-rewards cards require excellent credit.
But you should be concerned about the credit card’s terms. For instance, you’ll want to avoid cards with a high annual fee. The APR makes a difference, too, especially if you’re planning to finance a larger purchase with your credit card.
2. Know What You’ll Qualify for
If you haven’t recently checked your credit, it’s time to do that. Even if you think you have no credit history, you might be surprised. Student loans, for one thing, go on your credit report. If you’ve been making student loan payments regularly, you may have more credit than you thought.
Even if you have low or no credit, you can qualify for certain credit cards. But before you begin applying, you need to know where you are when it comes to your credit score.
3. Consider Your Options
Any time you apply for a new credit card, your credit score will go down just a bit. This isn’t a huge problem, as long as you aren’t applying for a bunch of premium credit cards for which you won’t qualify.
So before you start filling out applications, do some research on cards that might work for you. Many banks and credit card companies offer products specifically for building or rebuilding credit, so these can be good options.
If you’re really starting from ground zero with your credit, consider using a secured credit card. These are easier to get because you secure your line of credit with a small deposit into a savings account.
Also check out credit products offered by the bank where you have a savings and/or checking account. If you’ve been a good customer there, the bank may be willing to take more of a chance on you, even if you don’t have much in your credit file yet.
4. Don’t Ask for Too Much
It can be tempting to try to find a credit card that will offer you a high line of credit. Instead, refrain from asking for too much, especially if you still have trouble controlling your spending. You can easily build your credit score even if your line of credit is $500. Just use it for regular purchases and pay off the balance every month. If you feel that you deserve a higher line of credit, wait six months to a year, then ask the credit card issuer to increase your limit.
5. Use Your Card Responsibly
Once you get your first credit card (and you really should start with just one) begin using it responsibly. Ideally, you’ll pay off your balance each and every month, so you’re never carrying a balance or pay interest. Making regular payments while maintaining a very low balance is absolutely the best way to use a credit card to build your credit score.
In some cases, it’s OK to use a credit card as an emergency fund, or even to finance a big ticket purchase. If you do charge more than you can pay off in a month, try to keep your balance at or below 50 percent of your total credit limit. Once your balance goes above 50 percent of your limit, your credit score will start dropping, even if you’re making payments on time.