An individual’s first credit card can be a step toward building a strong financial future and establishing an excellent credit score. It can also lead to a mountain of debt that is followed by a struggle to repay for years. It’s thrilling to get your first credit card and the sense of freedom that comes with it. But tagging along with these feelings is a responsibility, something you need to learn before you begin swiping your card. It might be tempting to just flash your card everywhere, but there are a few lessons you must adhere to if you don’t want to end up in a debt trap. 

How Do Credit Cards Work?

Credit cards allow you to buy goods now and pay later. They aren't connected to your bank account. Like debit cards, they can be used to buy goods in shops, over the telephone and internet, with the same particulars being required. You can also get a cash advance by drawing money at bank cash machines. Your bank may offer you a credit card or you can apply for one to any institution offering one. The credit card provider will usually run checks to see if you've had problems repaying debts before offering you one called a credit check.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any exceptional fees, and the total amount to be paid. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect.

The cardholder must pay a distinct minimum proportion of the bill by a due date or may choose to pay a higher amount up to the entire amount allocated. The credit provider charges interest on the amount billed if the balance is not paid in full. Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding late payment as long as the cardholder has sufficient funds.

Tips for First Time Credit Card Users

Before using your first credit card, here are some tips to guide you along the right path.

  • Have a Strict Budget - Easily available credit could tempt to spend while handling a credit card. Such reckless spending could spell disaster for your financial planning. People end up spending more they can afford due to the simple reason that they are not being asked to pay upfront. This is surely not a healthy trend. Credit card beginners must make a strict budget for themselves and stick to it at all costs. Registering your mobile number with the credit card company is a smart move which lets you know your actual usage and balance credit limit so that you can track your expenses. Decide on a monthly limit for usage depending on your financial situation and stick to it at all costs.

  • Keep Track of Your Purchases - Calculating the amount you can afford to spend is the first step. After that, be diligent about tracking your purchases throughout the month, potentially with the help of your credit card’s mobile app or website. Once you’ve met your monthly spending limit, avoid using the card until you’ve paid off the balance. This kind of discipline helps you build a good credit score and keeps you out of credit card debt.

  • Make Full Payment - The credit card bill states the amount due, due date and the minimum amount payable. The concept of minimum balance is one of the most misleading features of credit cards. While by paying the minimum balance, you will be able to continue with the facilities, it will also mean an additional interest on the balance due. Normally, credit cards charge around 1.5 % to 3% per month on an outstanding amount which is a very high-interest rate. Thus, if you don’t pay the full amount due in time the bill for the subsequent month is likely to come quite inflated. Rollovers to next month also hurt your credit ratings subsequently.

  • Use as Little of Your Credit Limit as Possible - It can be tempting to max out your credit card—that is, charge up to your credit limit—but it’s crucial not to. Credit utilization, or how much of your credit limit you’re using, is the second biggest contributor to your credit score. That means running up a large credit card balance, and carrying it from month to month, can hurt your score. Plus, it can set the foundation for getting into credit card debt that can take a long time to pay off.

  • Security of Card – There are two important aspects of your credit card which need to be considered. Firstly, the cash advance PIN and secondly the CVV number. One must never disclose these two numbers to anyone to ensure the security of the card. CVV number is the number printed on the reverse of your card. Other security measures include ensuring that there is no skimming when you give the card to the salesperson behind the counter while buying items. Also, while using the card over the internet one must use only authorized and trusted sites. The correct procedure is a two-step method which is normally followed by most cards (such as Master or Visa), which requires confirmation such as a Verified by Visa password that is sent to you once. Make sure that your payment gateway asks for this password while transacting on the internet.

  • Check Your Statement Regularly - Each month your credit card issuer will send a statement that details your transactions from the previous billing cycle. Reading your billing statement is important even if you’ve scheduled your monthly payment. You should review your statement to catch errors or unauthorized charges. If you spot either of these, report them to your credit card issuer immediately to be cleared up. If you create an online account or download the card’s mobile app, you can check your transactions in real-time and spot errors much sooner. You can even set up alerts that may help you catch suspicious activity right away.

  • Know Your Fees - Except an annual fee, you can dodge the majority of credit card fees by foregoing certain perks. For example, you can make your payments on time to avoid a late fee. Skip the cash advance to avoid a cash advance fee. Avoid foreign transaction fees on purchases made abroad by opting for a card that doesn’t charge them.

End Note

Credit Cards are also referred to as plastic money. These are one of the most convenient ways of making payments while shopping and helps in maintaining records of all purchases made by us. The major advantage of credit cards is that you don’t have to carry cash and you can get rewards points on each purchase made. Before applying for a credit card, you must check your finances and see whether you can handle a credit card. Most people are prone to go on a small shopping trip now and then; and when the bill comes through, they panic and it can end up in a downward spiral if we are not careful.