Whether you’re buying your first home or shopping for your first car, when it comes to making big financial decisions, it’s important to get all the details before signing on the dotted line.
The same is true for taking out your first credit card. All too often, though, consumers are swayed by cash-back offers, bonus miles or even free food — one Marketplace Money Facebook follower told us she signed up for her first card in exchange for a burrito.
If you aren’t careful, you can wind up with the wrong card and — eventually — right where creditors want you, saddled with debt and a poor credit score.
So what can you do to protect yourself if you’re taking out a credit card for the first time?
Here are some guidelines to help you get started.
- Determine what kind of card you need. “Really it begins with the question of, are you going to carry a balance or are you not going to carry a balance,” says Ron Lieber of the New York Times. He always recommends not carrying a balance, but if you don’t have that option, “the interest rate is going to be the most important thing,” he says. For those who aren’t planning to carry a balance — and don’t have to worry as much about interest rates — there’s more flexibility. Lieber suggests considering a credit reward program, whether it’s cash back, bonus miles or proprietary points systems.
- Learn the lingo. APR, billing cycles, balance transfers. “By taking a few minutes to educate yourself upfront,” says Julie Sherrier of creditcards.com, “you can prevent mistakes before they happen — and perhaps save yourself a lot of money and headaches down the road.”
- Remember, the devil is in the details. Before you make a decision, make sure you read the fine print. Why? “Because the true costs of your credit card are disclosed here,” according to credit advice site sensibledollars.com. “What you see in the ads are only the best features of the credit card, the actual conditions are explained in the agreement.” And it’s up to you to find out what they are.
- Don’t be late. We all know being late to class or work can make a bad impression, so can being late on your credit card payments — and credit card companies aren’t quick to forgive. “Missing a payment can severely damage a person’s credit score and potentially lead to fees and rate hikes,” says April Lewis-Parks of consolidatedcredit.org. She recommends setting up payment reminders via email or text, which most providers offer these days.
- Credit cards aren’t magic money — and that’s according to a major creditor! On its website, Wells Fargo warns first-time cardholders, “You are borrowing the money you charge to [your] credit card and you must pay it back. While it might seem easy to swipe now and pay later, carrying a high balance or being unable to make your minimum payment can hurt your credit long into the future.”
If all else fails, though, just remember, if anyone ever asks you to take out a credit card in exchange for a free burrito, it probably isn’t worth it — even if you are really hungry.