The average person in the United States gets their first credit card at 20 years old. By the time they graduate college a few years later, the average student is carrying $2,200 in credit card debt and has a credit score of just 638, considered poor credit by most standards.
Luckily, you can prevent being one of these statistics by not making common mistakes in the beginning. Some of the first-time credit card user mistakes that also have the biggest impact on your financial well-being include:
Almost half of all college graduates have four or more credit cards when they graduate. When it comes to credit, however, "the more the merrier" definitely doesn't apply. Applying for multiple credit cards within a short amount of time can cause your credit score to take a hit. These inquiries, called hard pulls or hard inquiries, suggest that you're relying too heavily on credit.
Instead of applying for multiple cards, choose a credit card that fits your needs, then stick with that one while you establish your credit. Hard inquiries stay on your report for two years, they don’t affect your credit score after 12 months.
It can be tempting to take advantage of credit card offers in the mail or to open up a store credit card to save money on your purchase. However, signing up for credit cards on impulse can hurt your credit score and keep you from getting the most out of your cards.
It's better to shop around and find a card that fits your lifestyle and can offer the most perks rather than signing up for the first offer that comes along. You can remove the temptation altogether and free up a little space in your mailbox by opting out of these offers altogether.
It can be exciting to suddenly have an extra few thousand dollars available to you through a credit card. One of the biggest mistakes new credit card users make is using their card to purchase things they can’t really afford. The payments eat away at your budget, and it ends up costing you more in the long run. For example, let’s say you put a new $1,000 TV on your credit card that has 18% interest rate. If you just make the minimum payments, it will take you nine years to pay off. During that time, you’ll also spend $923 in interest.
Instead of going on a shopping spree, use your credit card to build up credit by putting a few expenses on it each month, then paying the balance off every month. You’ll still build up your credit, but you won’t pay money on interest.
A late payment here and there is no big deal, right? Wrong. Even one 30-day late payment can sabotage your efforts to establish good credit, lowering your score by up to 50 points and staying on your report for seven long years.
Get in the habit of always making your payments on time. Set up automatic payments to help ensure you don’t forget to make a payment.
The habits you develop when you receive your first credit card can impact your finances for years. Avoiding these common mistakes will help you develop good habits that will pave the way for a strong financial future.