Please ensure Javascript is enabled for purposes of website accessibility

This device is too small

If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.

Skip to main content

What First-Time Credit Card Users Need to Know

Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Every year, first-time credit card users peel the stickers from their cards and start exploring the world of credit. Unfortunately, no small number of those new cardholders will wind up with credit card debt and damaged credit due to misuse of these new cards.

Credit cards can be fun. They can be extremely convenient, too. Almost anywhere and at any time, you can buy things you want -- whether you can afford them or not. And therein lies the kicker. Without a proper education on credit cards and building credit (which few of us receive in school), it's all too easy to make costly mistakes.

On the bright side, a little credit education goes a long way, and managing your credit cards doesn't take an advanced degree in finance. To help, we've put together 10 things first-time credit card users need to know if they want to keep their finances from taking a dangerous detour.

1. Only charge what you can afford

It might seem obvious, but enough people ignore this to make it worth stressing: Don't spend more on your credit cards than you can afford to repay fast. First-time credit card users can be tempted to go a swiping spree, but spending beyond your means is a quick way to wind up drowning in debt.

Credit cards are convenient, but that convenience can make temptations hard to resist, since all first-time credit card users have to do is whip out the plastic for instant gratification. Instead of thinking of your credit card as "free money" -- which it most definitely is not -- treat your credit cards like debit cards. If you don't have the money in the bank to pay for a purchase, don't put it on your credit card. (This goes for experienced and first-time credit card users!)

2. Make your payments on time, every time

If you retain nothing else from our list, let it be this: Make your credit card payment on time every month!

If you only charge what you can afford, you can pay your credit card bills off in full each month -- and you should absolutely do so. But, even if you happen to fall a little short of your full balance one month, make at least your minimum payment before (not on, before) your due date.

That's not to say first-time credit card users should live in terror of being a day or two late. Being a few days behind will mean late fees and, with some cards, a hike in your APR (called a penalty APR). But it won't hurt your credit.

However, if you fall 30 or more days behind, that late payment becomes a delinquency, and that delinquency ends up on your credit report. Your payment history is the most important factor in your credit score, and even a single delinquent payment can hurt your credit for up to seven years.

Have a history of forgetting due dates? First-time credit card users should consider setting up automatic payments for at least the minimum payment every month. This will ensure you don't miss a payment, even at your busiest or most forgetful.

3. Don't just make minimum payments

So, when we say make at least the minimum payment on time every month, the "at least" is doing a lot of work. Only making the minimum payment is just asking for trouble.

Most credit cards have what's known as a grace period, the time from when your statement closes to when your bill is due. If you pay off your full balance before the end of the grace period -- i.e., before the due date -- you won't be charged any interest.

But if you only make minimum payments, you'll start accruing interest on the remaining balance -- and that interest can add up fast. The hard truth for first-time credit card users is that the minimum required payment isn't designed to help you pay off your balance in a timely manner; it's designed to help your card issuer make money on interest fees.

Consider this example: Imagine you have a $5,000 balance on your credit card, with a minimum required payment of 3% each month and a 15% interest rate. If you pay only the minimum, it'll take you more than three years to pay down that balance -- and more than $1,500 in interest fees.

First-time credit card users who swipe first and budget later can find themselves underwater on their cards in no time. Avoid the interest-fee trap, and only use credit cards to buy what you can afford to repay every month.

4. Know what to charge -- and what to avoid

There's an old adage that when all you have is a hammer, every problem looks like a nail. Many first-time credit card users think of their cards as a one-size-fits-all solution to any financing problem. Spoiler alert: They're not.

The vast majority of your everyday purchases can go on your credit cards without a problem. However, some things simply shouldn't be put on plastic. For instance, your credit card is not a great place to put any debt you'll need time to repay -- that's what loans are for.

Think twice before charging utility bills, rent, mortgage payments, or other purchases that come with a credit card processing fee. These fees can add 2% to 3% onto your bill.

First-time credit card users should also note that purchases that could be considered a cash equivalent -- such as lottery tickets, bets, or money orders -- are often treated as a cash advance by your credit card company. Cash advances not only come with transaction fees, but they'll also start accruing interest the second they hit your account.

MORE INFO: See The Ascent's detailed guide on whether you can buy lottery tickets with credit cards.

5. Choose your cards carefully

Credit cards are not all alike, and you should choose first cards that best fit your needs and spending habits. First-time credit card users can be lured in by sign-up bonuses and the prospect of big rewards, but every card has its fine print.

For example, those tempting store credit cards you'll see at every checkout may look great; who doesn't want to save $20 on a store purchase today? But store credit cards tend to have astronomical interest rates, and most store cards -- and their rewards -- can only be used to make purchases at those stores.

For your first credit card, you'll have limited options. Student credit cards are best for, well, students, and they can offer good rewards. If you're not a college student, consider a secured credit card. Other than requiring a (fully refundable) deposit to open, secured cards are just like any other credit card. Some secured cards even offer purchase rewards.

First-time credit card users should also limit how many new cards they open. Opening a new credit card has a number of credit score implications. Simply applying for a new card means a hard inquiry on your credit report, which can drop your score by a few points. Each new card account you open impacts your average account age and your new accounts factor.

6. Beware of fees

Although credit cards are technically made of plastic (or metal, in some cases), figuratively, they're made of fees. You can see all the fees charged by your credit card by reading your cardholder agreement -- fees usually get an entire page.

First-time credit card users will likely already have some idea about annual fees (charged every year to keep your credit card account open) and interest fees. But those are not the only fees your card issuer may charge.

Late fees, for instance, are extremely common, and you'll experience them if you ever make your payment after the due date. If that payment happens to be returned for some reason, you'll also likely see a returned-payment fee.

Something first-time credit card users may not realize is that certain types of transactions have fees. Balance transfers nearly always come with fees, usually a percentage of the transferred balance. Cash advances (or purchases termed such) are also charged a transaction fee. Many cards will charge a fee if you make a purchase in foreign currency, too.

7. Check your statements for problems

Each month, you'll receive a bill for your credit card. First-time credit card users may be tempted to simply check the balance and chuck the card statement in the bin. Instead, take a minute to review all the charges.

Do you recognize every charge? If an identity thief has used your credit card -- or, more likely these days, just the information on the card -- let the company know.

Fraudulent charges on credit cards are not uncommon (even for first-time credit card users) so be on the lookout. Even a tiny unauthorized charge of a few cents should be reported, as it might be part of a scam in which the crook is testing lots of card numbers to see which ones work before making big charges on them.

Reporting fraudulent purchases not only helps the issuer stop the fraud, it also makes sure you aren't paying for things you didn't buy. Legally, you're only on the hook for up to $50 in unauthorized purchases. More likely, though, your issuer has a $0 fraud liability policy that means you won't pay for anything you didn't purchase.

8. Check your credit reports every year

In the financial world, having good credit is important. Lenders of all types look at your credit reports when deciding whether to offer you credit cards, loans, and mortgages.

In the U.S., you have credit reports from three major credit bureaus: Equifax, Experian, and TransUnion. Your credit report records details about your debts, your repayment history, and your current credit accounts, including credit cards.

Most first-time credit card users have limited credit history, so there won't be a lot of activity on your credit reports at first. However, it's important to make sure that what is there should be there by checking your credit reports at least once a year.

You're entitled to a free copy of your credit report every year from each of the three main credit agencies -- visit AnnualCreditReport.com to order yours. Give your report a read to make sure everything is accurate. If you find anything that doesn't look right, head to the credit bureau's website or call them to file a dispute.

Checking your credit reports won't hurt your credit scores. That's a myth that, unfortunately, makes its way to a lot of first-time credit card users.

9. Keep an eye on your credit scores for any warning signs

Your credit scores are based on the information in your credit reports, which makes them a good indicator of the condition of those reports. Small fluctuations -- in the 5-10 point range -- can be completely normal, especially for first-time credit card users building credit. As your credit balances rise and fall and your utilization rate changes, your score will, too.

But if you see a huge change in your credit score? Something big just happened on your credit reports.

If you know you just signed up for a new credit card or loan, or you recently closed an old account, then a credit score change is expected. However, if you haven't made any changes to your finances that could have affected your reports and your credit score dramatically changes -- check your reports. Right away.

These days, it's remarkably easy to keep an eye on your credit scores. The simplest way for first-time credit card users to stay on top of their credit scores is through their new card. Most credit card issuers now offer free score tracking, and many offer score alerts and monitoring.

10. Don't be afraid to ask for help

One mistake a lot of first-time credit card users make is not speaking up when they're in trouble. Credit card contracts are full of terms and conditions and fine print, but don't assume they're set in stone. If you know you can't pay your credit card bill, call your issuer and ask for help.

It's in everyone's best interest -- yours and the issuer's -- for you to repay your credit card debt. The best plan is to call your issuer before you fall behind, as they may offer an extension or a payment plan that avoids late fees or excess interest. Working with your issuer can also prevent your account from becoming delinquent and damaging your credit.

Swipe smart, not hard

Learning the ins and outs of credit can be a challenge for first-time credit card users, but it's hardly impossible. With a little bit of knowledge, you can go from credit noob to credit card pro, and be well on your way to a life of good credit.

Always remember that building credit is a long-term game. You won't have excellent credit overnight; it can take years to build up a credit history worthy of a high credit score. But that effort can be well worth it when you enjoy quick approvals and low interest rates on cards and loans in your future.

Still have questions?

Here are some other questions we've answered:

Choosing a credit card

Don't you wish you could take a peek inside a credit card expert's wallet sometimes? Just to see the cards they carry? Well, you can't look in anybody's wallet, but you can check out our experts' favorite credit cards. Get started here:

Credit Card Expert Advice

Brian Walsh

Brian Walsh

CFP at SoFi

What advice would you give to first-time credit card users?
Use credit cards responsibly.

Ideally, you would only spend on your card what fits within your budget each month and you would pay your card in full and on time each billing cycle.

Choose your card wisely.

Start by looking at your spending. If most of your spending is in one category, then it might make sense to explore options that reward spending there. If your spending seems to be spread across the board, a simple flat cash back can be beneficial. Next, look at how you plan to redeem points. Even if it is cash back, think about where that cash will go. If it's in rewards, then be sure to calculate a universal value of the rewards. Finally, consider fees and interest rates. Fees can quickly diminish or eliminate the value of points, and interest can be especially costly if you carry a balance from month to month.

What mistakes should first-time credit card users avoid?
Avoid impulse purchases.

Saving your credit card details for easy one-click shopping can result in impulse purchases without even leaving the house. Consider turning off one-click buying and unsubscribing from marketing emails that may entice you to shop when you wouldn’t otherwise.

Sometimes, try limiting yourself to carrying only one card while leaving the rest at home. It’s okay to have more than one card and even use a couple of different cards on an ongoing basis, but assigning them with intention will help you stay organized. For example, some people like to use one card for personal expenses and another for business expenses, or one card for fixed monthly expenses and a different one for discretionary spending. The goal is to avoid using too many cards at once, since it could make it much harder to keep track of spending and easier to overspend.

What is a common misconception about credit cards?

The benefit of paying your balance in full.

Credit cards do not charge any interest when you pay your balance off in full each month, so you don’t have to worry about accruing interest unless you carry a balance from one month to the next.

Be careful paying the minimum.

Typically your minimum monthly payment is a small percentage of your total balance when above a certain dollar amount. For example, this could be a minimum payment of $25 or 4% of your balance if that amount is higher than $25. Remember that if you only make your minimum

payment, interest will begin to accrue and compound on your balance each day into the next billing cycle. By only paying the minimum amount until your balance is paid in full, you could be looking at a repayment period that would take decades, with the total amount of interest paid far exceeding your original charge.

How you pay impacts your spending.

There is a behavioral economics concept called the pain of paying. Basically, the types of payment can cause different levels of pain, which can impact spending. Using physical cash is associated with more pain than a credit card because the loss of money is visual, physical, and immediate. On the other hand, a credit card can cause less pain, since it's less tangible and the payment doesn't come until you get your bill. Using this perspective, you might consider changing how you pay for items based on how well you control your spending. If you struggle with overspending, then try using physical cash or even a debit card so there is a greater pain of paying. If you have a firm handle on your spending, then you might be able to foot a more flexible bill, like when using a credit card.

Christopher J. Marquette, Ph.D.

Christopher J. Marquette, Ph.D.

Grover Hermann Professor of Business at Millikin University

Does getting a new credit card affect your credit score?

Getting a new credit card does affect your credit score and can do so in either a positive or negative way. There are two effects, one due to the application for the card and one for having the card. First, applying for a credit card or any loan or line of credit has a negative impact on your credit score. When you apply for these credit opportunities, the lender will perform a "hard" pull on your credit record which is a negative factor in credit scores.

Having a credit card can affect your credit score in either a positive or negative way, depending on how many credit cards you have. Too few or too many credit cards is not good for your score. If you have no credit cards and you open one, that is good for your score. If you have 10 cards and get another one it is bad for your score. As for the dividing line of what is too many cards, conventional wisdom is five. If you have fewer than five open credit card accounts, you can open another one without having to worry. If you have five or more, you should be aware of the negative effect that opening another one may have.

Another consideration is what balances you have on your existing cards. Percentage utilization of your total credit limit is another factor in your credit score. If your existing credit cards are maxed out, then opening a new card will reduce your percent utilization, which is a positive for your score.

When should you apply for a new credit card?

I don't think there is any overall better or worse time to apply for a new card. If you don't have a credit card, it is best from a credit score perspective to open one as soon as possible. Length of credit history is a factor in your credit score and having a card earlier is good, even if you don't use it. Credit card companies tend to expand their business, seek new customers and offer better deals in good economic times and reduce their business in bad economic times, so applying for a card when the economy is good is better than applying when the economy is bad. I think this effect is pretty small, however, and the difference is only marginal.

How often should you get a new credit card?

You shouldn't open too many cards in a short period of time, that is a red flag for lenders and can hurt your credit score. After your first card, I would recommend not opening another one for at least a year. If you reach four or five cards, I recommend not opening any more. If you do have four or five open cards and need additional credit, I suggest requesting a credit limit increase from your existing cards. Most credit cards will oblige such a request for a customer with whom they've had a good history, i.e., all required payments paid in full and on time.

Carlo Silvesti, CPA,CGMA, MBA

Carlo Silvesti, CPA,CGMA, MBA

Adjunct Professor of Accounting at Gwynedd Mercy University

What advice would you give to first-time credit card users?

I would recommend that first-time users shop around for the right card. Before starting your search, you should be aware of your credit score. Some key points you should look for once you know your credit score:

  • Depending on your credit score, you may initially have to make a deposit to support your credit card before it is issued to you.
  • Shop around for the best interest rate. Also check to see that the credit card company does not charge an annual fee.
  • Do not exceed the credit limit you are given. The over-limit charges are expensive, and will have a negative impact on your credit score.

What is a common misconception around credit cards?

Here are three key misconceptions for first-time credit card holders:

  1. Making the minimum monthly payment is sufficient. This is a bad error to make. The higher the balance, the higher the interest payment will be and the more expensive your purchases will be when you include the interest on top of the purchase price. Make as large a payment as possible each month. Under no circumstances should you pay less than the minimum monthly amount. A credit card company can report the under-minimum payment as a missed payment, which will negatively impact your credit score.
  2. All reward programs are the same. This is not true. Find the right rewards program that fits your needs and lifestyle. For example, if you like to travel, then find a card that offers mileage rewards.
  3. Carrying a balance on your credit card builds your credit score. This is false. Carrying a balance could actually hurt your credit score. If the amount owed on the credit card approaches your credit card limit, your score could drop. It's best to pay off the entire amount owed monthly or as quickly as possible.

How can shoppers feel confident that they chose the right card?

A shopper can feel confident they have chosen the right card by doing their “homework.” The first step is to decide what are the key features the user needs. Then read and understand the terms and conditions of the credit card, and [decide if] it meets your needs. Some examples are interest rates. How does the card calculate the interest rate -- are interest rates different for different services? This would include the purchase of goods and services, and the interest rate on cash advances. Are you planning to travel internationally? You may want a card that does not charge an international transaction fee.

Sherrill Shaffer

Sherrill Shaffer

Emeritus Guthrie Distinguished Professor of Banking and Financial Services at the University of Wyoming

What advice would you give to first-time credit card users?

So you're new to credit cards -- congratulations! If you don't yet have one, here are some things to think about when choosing one. While it is convenient to have a credit card that was offered unsolicited or that was issued by your current bank, you can often find a better deal by shopping around. Some details to check would include:

  • The interest rate on unpaid balances (finance charge or APR -- not only during an initial promotional period but also afterward, in the long run)
  • Any annual fee, any perks (such as cash back, frequent flyer miles, or premium travel protection benefits)
  • Details of the billing cycle (e.g., does interest accrue only from a particular date or from the date of each purchase), and special fees for events such as late payment, overlimit, or cash advance

Decide which of these features are most important to you, and then focus on comparing those items.

What mistakes should first time credit card users avoid?

When using your credit card, it is important to avoid certain mistakes. Mistake No. 1 would be to think of the credit card as "free money." While a credit card does allow you to make some purchases sooner than if you had to save up for them, your total purchases over time are still limited to exactly the same extent by your overall income. Don't start overspending just because you have a credit card.

Mistake No. 2 would be to carry large unpaid balances from month to month, whenever a finance charge applies. Not only do you end up paying interest (which makes your original purchases more expensive), but also carrying an unpaid balance close to the card's credit limit will reduce your credit score. So, unless you are still within an initial grace period of 0% APR, it's a good idea to pay off your full balance each month. And always pay on time to avoid a hit to your credit score.

What is a common misconception around credit cards?

One common misconception about credit cards is that it's a good idea to sign up for every store credit card that is offered, especially if it allows a one-time discount on a purchase that you're already making. While the discount is a benefit, as is the additional credit offered by the card, having too many credit cards can start to reduce your credit score, as well as complicate your record-keeping and monthly payments, and possibly tempt you to overspend.

Why do interest rates vary by credit card?

Interest rates are only one part of the financial profile of each credit card. Issuers can rely on annual fees and other components of pricing to help cover their costs and earn a competitive profit, so you may see tradeoffs among those components. A credit card that charges a higher interest rate may, for instance, provide higher cash back rewards or a lower annual fee. The best deal for you depends on how you rank the relative importance of the interest rate, annual fee, rewards, and other features. As an example, if you plan to pay off the full balance within the grace period each month, a high interest rate should have no effect on you, so then you may want to pay more attention to the annual fee or the rewards.

Also, issuers may charge lower interest rates to cardholders with a better credit score, because the issuer is more confident that the cardholder will make payments reliably. This is the common practice of "risk-based pricing" and is one reason to maintain a good credit score. It's also true that some credit cards apply different interest rates to different components of the balance, such as cash advances or balance transfers versus regular purchases.

About the Author