How To Use a Credit Card? 12 Tips for First Time Users

Getting your first credit card can prove to be a very defining experience. It ushers in an era of financial independence in life and tremendous responsibility at the same time. Often, the first credit card is like a baby step into adulthood- marking a stage where you move from dependence to interdependence on parents.

However, you could land in big problems- social, financial and also legal, if you don't know how to use your first credit card.

If this sounds scary, continue reading. In this article, I will give you 12 excellent tips on how to use a credit card for first time users.

The Credit Card Scenario Worldwide

Nowadays, it's much easier to get a credit card than getting a personal loan or mortgage. The reasons are simple: banks and credit card issuers can get very high  returns when you use a credit card. These profits for banks and credit card companies come from partly paid dues that attract interest and Annual Purchase Rate (APR).

Furthermore, credit cards come with lots of hidden charges. Your bank might waive off the first year's membership fee but it could charge a service fee.

Also, there's something esoteric known as ‘issuance fee', which covers the actual cost of printing the credit card and mailing it across. That's because the vinyl or plastic on which a credit card gets printed does cost and making it secure to serve as one is pricey too- it needs lots of encryptions of data and stuff like that.

 

12 simple tips for first time credit card users

1. Know Your Credit card

The first step you should take to use the first credit card in life is to know your credit card. You might ask, what's there to know. Therefore, here're some points you should be looking for:

• Issuer: Visa, Mastercard, Diners Club, Discover, American Express. This is very useful because while some cards are accepted everywhere, others have limited acceptance. The first four to six digits of your credit card indicate the issuer clearly. In some countries, you can also get JCB branded cards and in others, RuPay branded ones. Generally, places online and offline will clearly indicate which credit cards they accept. Therefore, bear this in mind before making a purchase of especially while dining out to avoid any embarrassing situations.
• Credit Limit: As a rule, majority of credit cards come with an upper spending limit, for example, $1,000 only. This limit means your total purchases during any billing cycle should not exceed more than $1,000. And if you do for any reason, the issuer has a right to charge penalties. Also, if you don't pat full outstanding amount, your credit limit drops. For example, if you've  spent $1,000 and repaid only $250, your credit limit would be around $200 only. The bank or issuer adds an interest that further erodes your spending limit.
• Validity: All credit cards come with a expiry date. Here, it's important to know that your credit card might show expiry dt date or ‘valid through' as 11/30. This means November 2030. However, some credit cards aren't valid till  the end of the month. If  your issuer replaces it with a new card with extended validity, the old one automatically ceases to work.
• Terms & Conditions: These are the most dangerous and come in fine print. Hence, most of us ignore reading them. Sometimes, these terms and conditions could be harsh and we might find them unjustified. Or,  you might be bound to some clauses that were never disclosed earlier during the application period. Hence, read the fine print carefully and understand each and every nuance. If necessary, ask your banker to explain what certain terms or conditions actually imply.
• Area of Usage: In most cases, credit cards are issued for global use. However, lots of credit cards are nowadays issued for use within the country too. This is done  to prevent identity theft and fraudulent transactions. Certain issues allow the flexibility to activate or deactivate a card for international usage through their app. That means, you can activate international usage of the credit card simply turning on a feature on the app and switch off when in USA or home country.
• Branding: Nowadays, banks and credit card issuers offer cobranded credit cards with large  merchants such as Walmart, Amazon, Shell or other companies. This means, you're entitled to special discounts and privileges whenever you use the cobranded credit card with the branding merchant. For example, Walmart cobranded cards could get you some discount or extended repayment for purhases on this chain of superstores.
• Loyalty Programs: Almost every credit card in the world comes with a loyalty program. That means, you can score points for each dollar spent. In some cases, you can get double or even 10x or 20x points for spending on the credit card at select outlets. These loyalty programs are free and though you're entitled, it doesn't mean automatic entry. In most cases, you would have to activate your credit card for the loyalty program. This can be done through the loyalty program or the issuer's website or app.     

• 2. Opt for a secured credit card

If you’re a college student, choosing a secured credit card can be a great way to regulate your monthly spend with credit cards and stay out of a debt trap. Several banks offer these prepaid cards to students with low-interest rates and zero annual fees.

The way it works is that the parent/guardian deposits a certain amount in the student’s account with the card issuer – which would be his/her credit limit.

If the student fails to meet the due payment on her card, the issuer has access to the deposited funds as collateral; thus making it one of the safest way to use a credit card especially for first time credit card users.

3. Stick to a budget always

For rookie users, a credit card might seem akin to a rich uncle who pays off your bills. Get rid of that notion right away. While initially, it may look so, there are no free lunches in the world, and your credit card bill will come due – make no mistake about.

So credit card use should be done wisely. One of the best ways to use a credit card is to track your expenses and create a monthly budget for everything (including your credit card) and sticking to it.

This way you are less likely to go overboard with your spending or using your credit card.

Also Read: Top 8 Money Mistakes to Avoid in 2024

4. Pay your bill on time & in full

Received a higher than expected credit card bill for the month? No problem you can always pay the minimum amount and the balance some other time. Never ever fall into this trap.

While it may seem like the smartest way to use a credit card, especially if you’re short on cash, the fact is it isn’t. Banks charge a hefty interest on pending payments.

Late fees are also applicable if your payment is delayed. Both of which will not look good on your credit score. Thus, it is advisable to pay your bills on time in order to avoid hefty late payment fees, interest charges and other fines as well.

5. Be mindful of a credit limit increase

Very often credit card companies increase the credit limit of card users who pay their bills on time – it’s a subtle way of encouraging paying customers to spend even more money.

But that doesn’t automatically mean that you need to spend more money using a credit card. For the simple reason that your repayment capacity remains the same – unless of course, you have got an extraordinary pay hike at the same time.

Also Read: New & Smart Ways Online Thieves Use to Steal Credit/Debit Card Info

6. Never withdraw cash using your credit card

One of the best credit card usage tips is never to withdraw money using your credit card. It’s always tempting to use your credit card to withdraw cash when you need it in a jiffy.

But you need to know those card companies will charge you a higher interest for your cash withdrawal, plus the ATM charges, wherever applicable.

Moral of the story. A cash withdrawal using your credit card can quickly become a costly affair for you. Always try to carry the cash you need with you. Alternately use your debit card linked to your bank account in case of an emergency.

Also Read: Most Common Money Management Mistake People Make

7. Never share your credit card details

This is very important credit card advice from a security perspective. Sharing your credit card number and security details online or over the phone can be extremely damaging to your financial health.

It could make you a victim of credit card fraud – where your card has been used to make purchases by unauthorised persons. Also vast make it a point to ensure that you are using a secure site before making any online payments using your card.

8. Pay attention to the details

Make it a point to scrutinise the credit card bill you receive every month – to check for any unauthorised transactions and review all the applicable charges.

First time credit card users are prone to skipping the details and tend to just zero in on the bill amount, before discarding the bill in the bin.

This can prove to be a dangerous habit, and you could end up a lot more for a lot of things that you don’t know enough about. Bottom line, if you want to exercise complete control over your spending habits, you need to pay attention to the details.

9. Don’t shy away from asking for an interest cut

The interest charged by credit card companies on your bills are fixed, but they can be reduced if a customer puts in a genuine request. As per a 2017 survey by CreditCards.com, 87% credit cardholders who requested a late payment fee waiver got one.

Similarly, the percentage of customers who managed to get a lower interest rate and a higher credit limit was 69% and 89% respectively, while another 82% managed to get their annual fee reduced or waived entirely.

10. Only Charge for Things you can afford

Who doesn’t like to buy good quality, expensive stuff? When you have a credit card, there is always that added temptation to use it to buy fancy things you always wanted – but could never afford.

But again, this can be a recipe for landing in a huge fiscal debt trap.

Yes, it’s perfectly normal to desire the good stuff but use the credit card to buy it only when you’re doubly sure that you will be able to pay for it. Living beyond your means is never a good idea – with or without a credit card. So try to keep a lid on your spending habits.

11. Keep track of your credit score

Using a credit card can impact your credit score in several ways – either positively or negatively. For example, you can score more points if you pay your credit card bills on time and vice versa if you do not pay it on time.

In their enthusiasm to get their first credit card, many rookie users make the cardinal mistake of applying for several card membership on the go – in the hope of landing one of many.

What this can do is affect your credit rating negatively. A low credit score puts you in the category of risky borrowers – so getting a loan approved may pose a problem for you.

12. Double-check your rewards

Many first time card users also tend to get excited when they win a – cash/free travel reward – on individual purchases. These rewards are usually paid for by the interchange fees paid by a merchant bank to your bank – when you make a purchase.

The fees for this vary but are in the region of 2% or more. Some card companies offer rewards in the area of 5-6% on certain purchases – but they are usually capped at a certain amount.

So if you get a reward intimation that seems too good to be true, check the fine print in your card statement.

In Conclusion

Here are some of the most useful tips for first time credit card users.

Getting your first credit card can be an exciting and compelling experience for many, but – with great power, comes great responsibility.

While getting your first credit card may seem easy enough, using it is a serious business and needs to be treated responsibly. If not, your quest for financial independence can just as quickly turn into your worst financial nightmare.