First-Time Credit Card Mistakes And How To Avoid Them

When you get your first credit card, it can feel like you’ve struck it rich. After all, credit cards can give you access to more money than you’ve ever had and give you the power to build a good credit score.

Before you start swiping your card, it is critical to understand how to use your credit card responsibly. If not, you could find yourself racking up serious debt and ruining your credit score in the process.

Luckily, using your new credit card responsibly is as easy as learning from these common first-time credit card mistakes and avoiding them at all costs

Key takeaways

• The average household credit card debt is $5,221 as of Q3 2021. (Experian)
• Americans’ total credit card balance is $925 billion as of Q3 2022. (Federal Reserve Bank of New York)
• The average first-time credit limit is $500 to $1,000 but varies based on creditworthiness. (Bankrate)
• The average credit score was 714 in 2021. (Experian)
• The average approval rate for first-time credit card applicants (with no credit history) is under 40 percent. (Consumer Financial Protection Bureau)

Only making the minimum payment

When it comes time to pay off your credit card balance, you will usually have the option to pay two different amounts: your statement balance and the minimum payment due. If you pay your statement balance every month, you shouldn’t accrue any interest charges due to the grace period. This is a 21-day window after your statement’s closing date in which you can pay your statement balance before it starts accruing interest.

But if you pay your minimum payment only, you will carry over the remainder of your balance into the next billing cycle, which is when the balance starts accruing interest.

Considering the average credit card interest rate is 19.14 percent, you could be paying quite a bit extra if you hold a balance. It’s vital that you understand exactly what your interest rate is so you know how much you’ll have to pay if you do need to carry a balance.

While it may be tempting, especially if you find your bank balance getting low, paying only the minimum payment on your credit card statement each month will cost you more in the long run. The best practice is to pay your entire balance as often as possible. If you continually pay it off you won’t accrue any interest and you won’t be paying extra just to use credit.

Making late payments

Before you make your first purchase on your new credit card, make sure that you know when your bill will be due. To find out when yours is, you should be able to log on to your credit card’s website or app and locate the “payment due date.”

Even more important to remember is that you will decrease your credit score by making late credit card payments. Typically, after 30 days of non-payment, your credit issuer will consider your account delinquent and report your delinquency to the three major credit bureaus, TransUnion, Experian and Equifax. Recent data shows that delinquencies are up, rising from 1.66 percent to 1.81 percent in the second quarter of 2022.

If you become one of those delinquent accounts, you will likely see the effects of your delinquency on your account for up to seven years. To avoid the credit hit, consider setting up autopay on your account to at least cover the minimum balance each month. This way, you can rest assured that you will never be found delinquent, as long as you have enough money in your bank account to cover the minimum balance each month.

Bypassing starter cards

When you’re signing up for your first credit card, you might be tempted to apply for cards with the best travel rewards and high cash back rates. However, if you choose to bypass starter credit cards and student credit cards and apply for these cards, you will likely be rejected, especially if you do not have any previous credit history.

Instead of swinging for the fences, you should start with a credit card designed for people with credit history. If you happen to be a student, you can do this by taking advantage of credit cards specifically designed for students, like the Discover it® Student Cash Back or the Capital One Quicksilver Student Cash Rewards Credit Card. Just remember to spend responsibly. One survey found that over 64.8 percent of college students carry credit card debt, so only apply for these cards if you are sure that you are ready to handle monthly payments.

Submitting too many card applications

It’s important not to submit too many credit card applications at once when trying to get approved for your first credit card. Instead, you should research the approval requirements for the cards that you are considering and apply for only the one that you are best qualified for.

If your credit card application is denied, you should wait at least six months before submitting an application for another one. Since one hard inquiry may ding your credit score by up to 10 points, it’s easy to see how multiple inquiries can do a lot worse.

Maxing out your credit limit

When opening your first credit card, you might be blinded by temptation after you learn your credit limit, even if it is just a few hundred dollars. In fact, the average credit limit for first-time cardholders is $500 to $1,000. Before you max out your card, however, you should understand how reaching your credit limit affects your credit score.

What you should be paying attention to when spending on your card is your credit utilization ratio. This ratio is found by comparing the amount of credit used to the credit that is available to you. To maintain a good credit score, you want to keep this ratio as low as possible, with many experts recommending that you keep it below 30 percent.

If you surpass your credit limit, you might find that you owe additional penalties and fees to your card issuer, the amount of which should be outlined in your credit card agreement.

Not tracking your credit score

When you get a new credit card you can expect to start seeing changes to your credit score as soon as your credit issuer reports your credit activity to the credit bureaus. This typically happens at the end of each billing cycle, but the timeline can vary across lenders.

To ensure that you are building your credit and not hurting it, you should pay careful attention to your score. To track your credit score you can use credit score trackers made available through your credit card company (like CreditWise through Capital One) or companies like Credit Karma and Credit Sesame. These services track and update your score regularly and give you tips on how you can improve your credit score.

If you ignore your score, you’ll have a hard time telling which credit habits you need to improve upon. Having a low credit score could limit your options when you apply for other loans like mortgages and personal loans. Plus, a low score usually equals higher credit card interest rates. Having a good credit score (670+), on the other hand, awards you the best rates on all your lending options and improves your odds of approval when you apply for more advanced credit cards.

The bottom line

Some people open their first credit card to begin building or improving their credit, while others open one to access more money. No matter your reason for getting your first one, the key to avoiding credit card mistakes is to use your cards responsibly.

Avoid common credit mistakes by paying your balance in full each month, paying your bill on time, and keeping your spending low. Doing so can help ensure that your starter credit card leads to one with better rewards in the future.