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In this article: 

• What happens when you don’t pay your credit card bill on time
• Dos and don’ts for how to use a credit card
• How a credit card impacts your credit score
• Why you should keep your first credit card open for many years
• How to get a credit card without credit history 

Getting your first credit card is a big milestone, especially when every dollar counts. You’re not just getting a credit card – you’re building credit and setting yourself up for success so you can achieve exciting goals in the future, like using your credit to buy a car or a house. On the flip side, there are real consequences if the credit card isn’t used right. Credit card debt isn’t just a financial problem – it’s a mental health crisis for many Americans that report feeling depressed, anxious, and hopeless due to the debt they’ve racked up.

By taking a few minutes to read this article you’ll learn best practices for using your first credit card and simple steps for financial wellness now and in the future.

These are the do’s and don’ts of how to use your first credit card.

Choose a credit card with no annual fee

Keep things simple for your first credit card and find one you like without an annual fee. You may hear someone say they fly for free using benefits from their credit card, but they’re also paying for the credit card just to have it. 

You don’t need to pay an annual fee to have a credit card, so look for one without it! When comparing credit cards, note the annual fee, APR, and credit limit – keep reading, we’ll explain!

Start with one credit card and keep it open for a long time

When you find a credit card you qualify for with no annual fee, open one credit card and stick with it – do not keep opening more credit cards, as this may cause your credit score to decrease.

Also, as your first and oldest credit card, you’ll treat this one a bit different. Hold onto this credit card and keep it open for as long as you can. This will help build your credit history and may improve your credit score. Someday in the future you’ll want to open a second credit card, and you can, but you’ll still want to hold onto the first one to maintain that long credit history.

Only spend what you can repay

Think of your credit card as an extension of your wallet, not a gift-giving genie lamp. Every swipe is a short-term loan, and the best way to stay in control is to only charge what you can realistically pay off within the next one-to-three months. Why? Because the longer you carry a balance, the more interest you pay. If you’re living on a tight income, interest charges can feel like throwing your precious money away.

Before making a purchase on your credit card, ask yourself, “Could I cover this with cash today?” If the answer is no, it’s better to wait and save more money before making the purchase. Thoughtfully using your card and limiting your purchases prevents money-related stress and debt.

Tip: Only charge what you can pay off in 1-3 months.

Pay your credit card bill on time to protect your credit score

Having a healthy credit score is critical for achieving financial wellness. Depending on how you use it, a credit card can both help and hurt your credit score. Payment history is the biggest factor in your credit score and has long-term impact, like whether you'll get approved for an apartment or a loan in the future, and how much interest you’ll pay.

Even one late payment can hurt your score and trigger late fees, so make sure you pay your credit card bill on time. Set a reminder on your phone, write it down, and don’t miss the due date.

Credit scores below 580 are considered poor, while 800+ is excellent.

Don’t max it out - keep your credit card balance low

Every credit card has a ‘credit limit,’ a maximum amount the card holder can charge. The credit limit can be determined based on a number of factors, including your credit history, credit score, the type of credit card, and how much debt you have compared to your income.

You may be approved for a credit limit of up to $5,000, but that definitely doesn’t mean you should rack up $5,000 in expenses. It’s recommended to use less than 30% of your credit limit – charging too much can put you at risk of lowering your credit score.  

Tip: If you think you’ll use more than 30% of the credit limit, make multiple payments on your credit card each month.

Plan ahead to pay it off, or get stuck paying interest

Paying your credit card on time and for the full amount not only supports a healthy credit score but will prevent you from paying interest on the expenses you charged. The amount of interest you’ll pay depends on the statement balance or outstanding balance on the credit card, and the annual percentage rate (APR) of your credit card.  

For example, if you leave $100 on your credit card unpaid for a year, and your credit card has a 20% APR, you’ll owe $20 in interest, on top of the $100 you borrowed. Aim to pay the full credit card balance each month, not just the minimum payment.

APR is the yearly interest rate on your credit card balance. If you don’t pay off the full amount, the card company charges interest every day based on that rate.

Automate your credit card payments

One way to make sure that you don’t accidentally miss a payment on your credit card is to automate them. Log in to your credit card account and set up monthly payments for at least the minimum amount due. You may also have the option to schedule automatic payments for the full statement balance, which is ideal.

If you’re worried you won’t have enough in your checking account to pay the full statement balance each month, you can schedule the minimum payment, regularly check the balance, and make a second payment for what you can afford.

Just getting started and want help designing your financial plan? Schedule a free Financial Wellness Review at your local United branch and get personalized guidance and tips.

No credit? Build it with a secured credit card

A secured credit card helps those without credit build it, and those with bad credit, fix it. This type of credit card is easier to get approved for and works similar to a regular credit card with a few exceptions. You’re still at risk of decreasing your credit score if you miss a payment, as payment activity is reported to major credit bureaus just like other credit cards.

How it works is you open a savings account and deposit at least the minimum required amount for collateral ($200 or more) which will become the credit limit. You can’t charge more on the secured credit card than you have in the savings account. 

Since a credit score shows financial institutions that the person has credit history and can be trusted to make payments on time, someone without a credit score (or without a good one) means the financial institution is taking on risk by loaning them money. The risk is reduced, and no credit pull is needed by requiring the card holder to open a savings account and deposit money that will 'secure' their credit limit.

It’s important to build credit so you have it when you need it, like when you need a new car and apply for an auto loan.

What U need to know

Your first credit card can be a powerful tool for building credit when it's used the right way. Charge only what you can afford to pay off in one-to-three months, make your credit card payments on time, and keep your credit card balance low. Select a credit card that doesn’t have an annual fee and set up autopay to make sure you don’t miss a due date. Now you know what you need to do – start building credit and make future you proud that you did.