When you’re just starting out on your own, credit cards offer a convenient way to make purchases and build a credit history. But it’s also easy to make costly mistakes and damage your credit record. Here are tips for responsibly managing credit cards.
Read the fine print. “Before you apply for a credit card, read all the terms and conditions so you know exactly what you’re getting into,” said Susan Boenau, Chief of the FDIC’s Consumer Affairs Section. “This is especially important if the card offers a low introductory Annual Percentage Rate because you need to know when the introductory rate ends and what the new, higher rate will be.”
You can avoid fees by being aware of your card’s credit limit. If you want your credit card issuer to permit transactions over your credit limit to go through, you must notify your lender that you want that service in advance and will pay the resulting fees. “To avoid the fees from going over your credit limit, don’t ask for the service and instead allow the transactions to simply be turned down,” said Heather St. Germain, an FDIC Consumer Affairs Specialist.
Try to pay the entire balance in full and on time every month. That way, you will avoid interest charges and save money. However, if you can’t pay the balance in full, pay at least the minimum monthly payment amount, and do so before the due date. Remember that late payments can result in fees and hurt your credit score (see Build a Good Credit Record: It’s Important for Loan and Job Applications).
Think twice before applying for more credit cards. Special promotions, such as low introductory rates or discounts on purchases, make it tempting to apply for additional credit cards. But every time you apply for a card, it appears on your credit report. Multiple applications (called “inquiries” on a credit report) or new cards opened within a short time period can lower your credit score. One reason is that this scenario could suggest that you may be about to take on more debt than you can manage. (For guidance on managing debit cards, see For Everyday Banking: Choosing the Best Account for You.)
Take advantage of automated alerts from your card issuer. Many lenders and other companies can send customers messages by cell phone or e-mail, such as payment reminders, balance notifications to let you know if you’re close to your credit limit, and information on suspicious activity that may indicate fraud. Check with your card issuer to find out if it offers alert services and whether there are any associated fees.