Getting your first credit card can be a novel experience for you. But as good as it might feel to have additional money to your name out of nowhere, it’s important to remember that it all comes from borrowed funds that you actually have to return.
This puts some massive responsibility on your shoulders: Besides making sure that you use your approved credit carefully, you also have to know how exactly it might affect your credit score in the long run.
To help you learn more about this important part of financial knowledge, here’s how and why your first credit card can make or break your credit score.
It Starts Your Payment History
Before you get your first credit account, you have an unscorable or invisible credit score. But after six months of getting your first credit card, you can start seeing a credit score against your name. This kicks off your payment history that essentially sets the foundation for your credit score, and paves a path to unlocking the secrets of best personal loan rates, mortgage rates, as well as other credit interest rates.
It Influences Your Credit Score
Besides establishing the start of your credit score, your first credit card also influences it right off the bat. For example, if you delay any payments, it can drop your credit score. Similarly, if you make your payments on time, it shows your responsibility and improves your credit score. You can also request for a credit report to see how it all shows up on paper and how your efforts to maintain your credit card bring results over time.
It Establishes Your Credit Utilization
Your credit utilization ratio defines how much of your approved credit amount you use each month and how it affects your credit score. Basically, your credit utilization ratio should be below 30% of your approved credit limit. But according to some experts, it should be under 10% of your approved credit. You can use tools like a budgeting journal to keep your spending low and manageable for the ideal credit utilization ratio.
It Can Act as Your Oldest Credit Account
The age of your oldest credit account plays a major role in determining your credit score. That is why your first credit card stands tall in terms of its importance. When you maintain your credit card with timely payments, you can continue maintaining it for years to come. If you use a loan EMI calculator for financial planning in the future, a high credit score can fetch you competitive interest rates.
It Influences Your Access to Future Credit
After learning a little more about how your first credit card affects your credit score, it is not difficult to understand that it can heavily influence your access to future credit like mortgages. Similar to how people adopt budgeting tips to manage personal loan, you should make it a point to establish a plan that helps you keep your very first credit card for the long haul.
It Sets Your Spending Habits
If you have ever used a time tracking app, you may know just how influential your actions can be in terms of setting your long-term habits. When it comes to your first credit card, how you use its approved credit, make its payments, and manage your spending can all contribute to establishing your spending habits and future credit score. This makes your first credit card extremely crucial to your financial freedom later in life.
It Helps You Become More Financially Responsible
Regardless of how much money you earn and how much you spend, it’s critical that you pay close attention to your finances with options like a savings account. This also holds true for your first credit card. When you are mindful about things like your approved credit, spending habits, and credit utilization ratio, you can become more financially responsible and improve your credit score in the future.
After going through this information, you can understand why your first credit card is significant to your credit score. This can help you make informed decisions to improve and maintain your overall financial health.