The time has come for you to get your first credit card. That beautiful shiny piece of plastic that signifies adulthood is finally in your hands, but this beauty comes with great responsibility.
When you get a hold of a credit card, you may feel you no longer have to carry cold hard cash on your person. It becomes second nature to continuously swipe your credit card, but this could lead you down a long dark road.
Managing how many times you swipe your credit card can be difficult if you don't stay on top of it, but you probably should. A credit card is a big commitment and could mean thousands of dollars in debt if not managed properly.
Your credit card balance accounts for 30% of your credit score, so it's important to make sure you pay on time as well as try keep your balance anywhere between 10-30% of your credit limit. This one might be difficult, but it just means paying for things in cash and using your card for emergencies; only using 10% of your credit limit looks much better than spending all of the allotted limit.
It is very important that you do not make a habit of paying your bills late. According to
Trulia, payment history comprises 35% of your credit score, which means missing even just one payment can drastically affect your credit score, hurting your ability to make major purchases in the
future. If being late is a problem for you, set up alerts telling you when your payment is due, or sign up for automatic payment to ensure you are paying your bills on time.
Not many people check their credit report and it is VERY important that you do. Every 12 months you are entitled to a free copy of your credit report from Equifax, Experian, and TransUnion, three major credit bureaus. Some bureaus report that anywhere from 10-33% of Canadians spot errors on their credit report. These errors are typically outside of your control, so be sure to review each report carefully. It takes time to get these errors removed, so be proactive about the situation and contact the credit bureau as soon as you notice an issue.
It's okay to have a few credit cards; it helps spread your balance across cards. However, be sure not to open too many as this can damage your credit score. With every credit card account you open, you trigger a "hard inquiry" on your credit report which can subtract up to 5 points from your score. If you open one card or two, it may not seem like a lot. However, opening multiple can result in serious damage as well as shorten the average age of your credit account which will then hurt the length of your credit history which accounts for 15% of your score.
Now, if you already have a number of cards open that you don't use and are looking to close them, this can also hurt you. Closing the credit card account can lower your available credit limit as well as reduce the average age of your accounts. So if you do have a lot open and don't use them, make sure you at least charge one purchase to the card each quarter so it is not deemed inactive. If the card is deemed inactive by the company itself, they could close it without any advanced notice.