When you graduate from college, you’re faced with a slew of financial choices — and new responsibilities. If you’ve landed a job, your newfound income could also help you access financial products you couldn’t before — such as rewards credit cards.
But before you sign up for a card, or start using one regularly, it’s important to be aware of three major credit card pitfalls to avoid.
1. Choosing the wrong credit card
The 2009 CARD Act restricted how credit card companies can market to college students and made it harder for college students to get a card, but new grads may find themselves with a host of card choices.
It’s important not to rush into signing up for one, even if you’re tempted by the promise of a sign-up bonus or other perks. You want to find a card that:
- Offers bonus rewards that match your purchasing patterns. For example, if you’ll spend a lot on groceries now that you’re no longer on a dorm dining plan, you may want a card offering bonus rewards for grocery purchases.
- Charges no annual fee (or a reasonable one). While cards with fees are sometimes worth it if the card’s perks justify the costs, be certain you’re getting benefits you’ll use before paying to become a card member.
- Doesn’t impose other costly fees that could apply to you. For example, some cards charge foreign transaction fees. If you plan to go abroad often for work or pleasure, you probably don’t want that.
- Has a new card member sign-up bonus you can easily earn: Cards often offer incentives, such as $250 in cash back after signing up, but you have to meet spending requirements to earn them. If you don’t spend much as a new grad, it does you little good to sign up for a card to earn a bonus you won’t qualify for.
Carefully research card options — there are lots out there.
2. Charging more than you can afford
Credit card interest rates can be really costly. If you pay off your card in full each month, that doesn’t matter — you won’t pay interest. But if you charge more than you can cover when the bill comes, you end up owing interest charges.
If you don’t pay your balance in full, interest makes your purchases costlier, and commits you to a new monthly payment. When you use tomorrow’s income to pay yesterday’s bills, you make it less likely you can live within your means — and more likely you’ll end up deeper in credit card debt.
Avoiding this is crucial. Keep careful tabs on what you’re charging, and stop using your cards before your balance climbs to a level you can’t repay.
3. Forgetting to pay bills
It’s easy to let things slip through the cracks when you’re starting out. Unfortunately, missing even a single credit card payment can damage your credit score for years. You don’t want a score that impairs your ability to buy a car or qualify for a mortgage loan because you forgot a payment.
To avoid this, set up text reminders or calendar reminders for a few days before your payment is due. Or, if you’re living on a budget and confident you can pay your card in full, consider setting up automatic payments so there’s no chance of missing your due date.
By avoiding these three pitfalls, you can make sure your credit cards help you earn rewards and build credit without leading you into debt. They can be a great tool to develop your financial future, just as long as you’re using them in a helpful way.