A New Grad’s Guide to Credit Cards

If you’re a fresh graduate right out of college, life can feel overwhelming right now. You just finished four years (or more) of school and now have to face problems like finding a job, moving into your own apartment and paying down student loans. Getting a credit card is probably not a priority right now, but not having a credit card can make life more difficult.

Why You Need a Credit Card

A report from Princeton Survey Associates found that approximately 60 percent of millennials—people between the ages of 18 and 29—do not have a credit card. That’s a big problem. While avoiding debt is a smart idea, going without a credit card can cause issues.

One of the biggest factors that impacts your financial life is your credit report. Your credit history can affect everything from getting approved for a car loan to getting a new cell phone plan. Without a credit card, it can be hard to establish a good credit history.

Moreover, credit cards are increasingly necessary for routine transactions. For example, if you want to take advantage of online bill pay for rent or utilities, many companies only accept credit cards, not debit cards.

Getting a credit card can help you simplify your bill management and help you establish good credit.

What To Consider Before Applying

If you have decided to move forward with getting a credit card, there’s several factors you should consider before applying:

APR

The credit card APR, or annual percentage rate, is the amount of interest you’ll pay in a year on top of your regular balance. Depending on the card and your credit history, interest rates can range from 13 percent to as high 23 percent.

Before signing up for a new card, make sure to check the APR. If you carry a balance, the APR can cause your debt to balloon. That issue can make it difficult to get out of debt.

Annual Fees

Some credit cards, particularly rewards cards, charge customers an annual fee. Depending on how often you intend to use the card, the annual fee may be an unnecessary expense. Carefully compare the value of the cards’ rewards to the cost of the fee; in some cases, it may be a better idea to keep shopping for a card that doesn’t charge a fee at all.

Rewards

If you’re looking for a rewards card, think about your lifestyle and what would benefit you the most. While travel rewards plans sound glamorous, it may be more worthwhile to look for cards that offer cash back bonuses or gas points, especially if you’re on a tight budget.

Secured or Unsecured

Depending on your credit, you may not be able to get a regular, or unsecured, credit card. Instead, you may have to start with a secured card. A secured card is essentially a beginner’s credit card. You deposit money into an account, and that amount is your credit limit. Once you’ve spent that amount, you cannot use the card again until you make a payment.

While a secured card may not be ideal, they can be great tools for building credit. After using the card and paying your bills on time, you may improve your credit and may be able to qualify for an unsecured card.

Using Your Card Wisely

Once you have gotten your first credit card, it’s important to use it carefully. Having a credit limit can be dangerous; it’s easy to use the card for drinks with friends or new clothes you can’t afford. That approach can lead you into debt, which can be difficult to conquer. Here are some tips to keep in mind to prevent that from happening:

Pay Your Bill in Full

Each month, your credit card company will send you a statement with your current balance and your minimum payment. While the minimum payment may be low, you should never pay just the minimum. Doing so can cost you thousands over time, and you may be paying off your balance for years.

Instead, aim to pay the statement balance in full every month. Keep to a budget so you can easily afford to do so every month. If you charged more than you can pay off, that’s a clear sign that you’re overspending and need to take another look at your budget.

Use It For Routine Purchases

A great way to use a credit card strategically is to use it only for routine purchases, such as utility bills, groceries and gas. Because these are expenses you would pay anyway, you can earn valuable rewards, like cash back, without going into debt. If you pay your balance in full each month, you can build your credit history without any risk.

Getting Your First Credit Card

As you begin your professional career as a new graduate, your first credit card can be an essential tool for paying your bills and building your credit. By doing your homework and creating a plan for its use, you can use your credit card wisely without running up a balance.