10 tips for your first credit card

By Marianne Curphey

Used wisely, your first credit card can be an excellent way to build up a good credit record, pay for large purchases over time and enjoy several weeks of interest-free credit each month.

Just don't get so excited about your new piece of plastic that you forget to read the fine print.

"It is a really good idea to get to grips with how much it is going to cost and to understand the difference between loans, overdrafts and credit cards," says Una Farrell, media relations manager at the Consumer Credit Counselling Service. "Understanding this will serve you well for the rest of your life."

Here are 10 tips for getting your relationship with credit off to a good start. first-credit-card

1) Understand why you're getting the credit card.

Think about what you want the card for -- buying goods online, for example, or for emergencies. If you're getting a card to buy something that costs more than what's in your bank account, think twice.

"It is important to be clear about what you need the credit for," says Farrell. "Is it something that you can save up for instead?"

2)  Choose a card that suits you, not just the one with the best freebies.
If you do want rewards, there are plenty of rewards cards available, offering cash back, travel rewards or even both. Yet don't just choose a credit card for the free offers, like travel insurance, motor breakdown insurance or rewards points, unless you are sure you will use them. Otherwise, you'll end up dealing with your card's complicated rewards structure and possibly paying an annual fee while also trying to get a handle on the basics of credit.

Instead, consider keeping things simple with a card that has a low interest rate so that you won't get stung if you can't pay the entire balance off when the bill comes due.

3) Know your credit limit -- and don't exceed it.
Your card issuer might offer you a higher credit limit -- yet you don't have to accept the offer. Make sure your limit is high enough for emergencies, but not so high that it tempts you to rack up debt.

Keep an eye on your balance. Don't let it creep so close to your limit that you risk going over it. Credit agency Equifax recommends trying to keep your balance well below 30% of your limit to keep a healthy, score-boosting debt-to-credit ratio.

4) Know your due date.
Make sure you never miss a payment or pay late. If you consistently miss payments, your credit rating will be affected. If you can't pay the whole balance, it's better to pay at least the minimum amount to avoid late payment fees.

Conversely, if you pay your bill on time, you will be demonstrating that you can handle credit. This will put you in good standing, should you apply for a mortgage, a mobile phone contract or another form of credit in the future.

"A key element many lenders look for when deciding whether to give you credit is whether there is a body of evidence that you can be relied upon to repay credit on time," says James Jones, head of consumer affairs at the credit agency Experian. "A lender will want to see that you have an existing track record of paying on time and credit cards, if used correctly, are a great way of demonstrating this."

5) Always check your statement. This will help you spot any fraudulent activity on your card, correct bad spending habits and prevent you from ignoring your balance.

6) Know the costs of your card.
Make sure you understand whether your card has an annual fee, what fee you will be charged for missing a payment and what you will be charged for using your card overseas or for withdrawing cash. Some cards offer a "teaser" rate, which means the interest rate starts low but increases after an initial period. Keep in mind that using your card to withdraw cash means you will be charged interest from the day you take out the money (unlike with purchases, there's no interest-free period), and that cash withdrawals may incur a higher interest rate and extra fees than purchases..

7) Be clear about your card's APR.
The annual percentage rate (APR) is the interest rate you will pay on existing balances. There are huge variations. If you have good credit, you might be able to snag an APR that's under 10%. Some rewards cards charge much more, and cards designed for those with bad credit can near 40%.

Think about how you are going to pay off the bill. If you make only the minimum payment each month, the interest you owe will rack up, making it difficult to clear your debt.

8) Don't rely on your card for essentials -- and don't buy anything that you can't really afford.
Using your card to pay for basics (like rent and groceries) can be a warning sign that your spending could be getting out of control. When it comes to splurges, make sure you have money in the bank to pay for it.

9) Let your card provider know immediately if your card is lost or stolen.
It is your responsibility to tell your provider as soon as you can if your card is lost or stolen. This way, you limit your liability for any fraudulent charges.

10) Don't write down your PIN number, and don't give your card details to anyone else.
Make sure all your details are secret, so no one but you has access to your card. If your bank finds out you shared your PIN or wrote it down, you may be liable for fraudulent charges.

See related: 6 things you need to know about overdrafts, Being to credit-shy can backfire

Published: 23 May 2012