“What are the best ways to find and manage my first credit card?”

For most college students, getting your first credit card is a rite of passage. It’s the first step in establishing your credit and building your financial independence. However, unknown to many college students, when it comes to your future post-graduation opportunities, building a positive credit history is just as important as maintaining a strong GPA.

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The importance of good credit.

How you manage your credit cards can either set you up for financial success, or it can begin a costly uphill battle of paying down debt for years to come. A positive credit card history can open many doors–from renting an apartment, to getting a car loan and buying a home. While credit card mistakes can have several costly consequences: dinging your credit score, causing higher interest rates, unnecessary fees and lowering your credit limits.

From picking the right card to managing your credit, here are the major things every new cardholder must know.

Choose your first credit card carefully.

Not all credit cards are created equally—especially student credit cards. Just because you have been sent a credit card offer doesn’t mean it’s right for you. Take time to research and compare credit cards so that you find one that best matches your lifestyle and spending habits.

Student credit cards. Because college students tend to have a limited credit history, student credit cards are designed to help new cardholders establish credit. Look for a student credit card with no annual fee, added perks like cash back, no late fee on your first late payment, travel benefits and a variety of ways to redeem your rewards. For example, some credit cards allow you to use your rewards at merchant websites to pay for textbooks, dorm room essentials and more.

Secured credit cards. Secured credit cards can be a great option for people with no credit history or those looking to build or rebuild their credit history. A secured credit card requires a cash security deposit, and your credit line will be established up to the amount the lender can approve. Using your secured card will build a credit history with the three major credit bureaus. Generally, prepaid and debit cards don’t do that.

Make sure you understand all of the credit card’s terms.

Annual Percentage Rate (APR). Your APR is the amount of interest you will be charged for carrying a balance month-to-month. It’s important to always consider low or 0% introductory APR offers carefully and factor in the standard purchase rate and penalty APR. The penalty or default APR is the interest rate that is applied when you are delinquent in making a minimum payment. Make sure you know how much it is, when it may be applied, and factor in the likelihood of having to pay this higher interest rate at some point.

Fees. One of the biggest credit card fees to try and avoid are annual fees. Some student credit cards and secured credit cards have annual fees. If you are considering getting a secured credit card, make sure to also check for additional application and processing fees. With every credit card, it’s important to always read the terms and conditions carefully, so you understand how to avoid common fees.

Rewards. If your credit card comes with a rewards program make sure you understand how it works so you can make the most of your spending. For example, some credit cards offer 1% to 5% cash back rewards on certain categories, but have earning limits, expiration dates, or quarterly enrollment requirements.

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Using your credit card wisely.

1. Many cards come with a grace period on purchases, which means that you can avoid interest charges on purchases if you pay your balance in full each month. Once you do not pay your entire balance by the payment due date and start to carry a balance, you will lose your creditor’s grace period on purchases and the interest will start accruing every day until the balance is paid. If you are unable to pay the full balance, always try to pay more than the minimum payment and earlier in your billing cycle to reduce interest you will accrue.  Another way to manage your account is to make multiple payments in one month, but always ensuring those payments exceed your minimum payment due.

2. Know how much you can afford to charge. One of the golden rules of credit cards is to only charge what you can afford to pay. Using your credit card on items you can’t necessarily afford right now is one of the quickest ways to get into debt because you are building a balance you won’t be able to repay in the short-term. Many issuers offer a variety of tools within your online account to help manage your spending. For example, Discover offers Spend Analyzer. This personal finance tool gives you a fast, easy way to see how you’re really spending on your Discover card – so you can make smart spending choices.

3. Stay under your credit limit. One of the keys to good credit management is to keep your total charges well within your credit limit. The best practice to protect your credit score is to keep your credit card balance below 30% of your credit limit. 1

4. Think twice about taking a cash advance. Cash advances can be helpful in emergencies but can be costly in the long run. When you take a cash advance you will be charged a fee (typically 3-5% of the cash amount), plus cash advances may have a higher interest rate than your standard purchase APR.

5. Check your credit report regularly. One of the best ways to build a positive credit history is to make sure you understand the information that is being reported, and routinely monitor your report for errors and negative information because it can damage your credit history. The Fair and Accurate Credit Transactions Act of 2003 (FACTA) made it possible for you to get a free credit report from each of the three major credit bureaus – Equifax, Experian, and TransUnion each year. You can visit annualcreditreport.com to request your free credit report.

Using your credit card responsibly when you are in school can help set a strong financial foundation for future borrowing. By establishing and maintaining a positive history, you increase your chances of borrowing money in the future at more favorable terms and conditions.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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