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Bottom Line Up Front

  • Understanding how credit cards work—from fees to fraud protection—is the key to using them wisely.
  • Research and choose a credit card with benefits and rewards that match your lifestyle.
  • Think of credit cards as a way to earn rewards and get through emergencies, rather than a way to fund purchases.

Time to Read

4 minutes

January 25, 2024

Opening your first credit card is a milestone in life. While credit cards can be valuable tools for building credit, managing expenses and earning rewards, they also come with responsibilities and potential pitfalls

But don’t worry! We’ll walk you through everything you need to know before taking the plunge into the world of credit cards.

Understand the Basics of Credit Cards 

Credit is a form of borrowing money from a bank or credit card issuer. When you use a credit card to make a purchase, you’re essentially taking a short-term loan from the card issuer. After you spend, you’ll receive a statement each month showing the balance you owe. Along with the balance, you may owe interest—which is essentially a fee on the money you're borrowing. To avoid paying interest, you'll need to pay the statement balance completely.

There are many terms and features you should know about credit cards before you apply for one.

  1. Credit card issuer: A credit card issuer is the financial institution or bank that provides you with a credit card. Common examples of issuers include major banks, credit unions like Navy Federal and other financial service providers.
  2. Credit limit: Your credit limit is the maximum amount of money that the credit card issuer allows you to borrow on your card. Essentially, it’s a cap on your spending. It’s important to know what your credit limit is to avoid overspending or having your card declined.
  3. Statement balance: The statement balance is the total amount you owe on your credit card at the end of the billing cycle. This balance reflects all the purchases and transactions you made during that period—as well as any unpaid amounts from previous billing cycles and any interest accrued.  
  4. Minimum payment: The minimum payment listed on your statement is the smallest amount you must pay toward your credit card balance each month to stay in good standing with the credit lender. However, if you only pay the minimum, you will likely be charged interest. It’s best to pay your statement balance in full every month.
  5. Annual percentage rate (APR): The APR is the interest rate charged on any outstanding balance you carry on your credit card. This rate is expressed as a yearly percentage. The APR on your credit card might be fixed (meaning it stays the same for the life of the account) or variable (meaning the rate might fluctuate over time).
  6. Credit score: Your credit score is a numerical representation of your creditworthiness, ranging from 300 to 850. It’s calculated based on factors like your payment history, credit utilization, length of credit history, credit mix and new credit applications. The higher your credit score, the better.
  7. Credit report: Your credit report is a detailed record of your credit history, including credit accounts, payment history and any negative information such as late payments or defaults. Credit reporting agencies compile and maintain your credit report.
  8. Credit utilization ratio: The credit utilization ratio is the percentage of your credit limit that you’re currently using. A lower credit utilization ratio is generally better for your credit score, since it indicates responsible credit management.
  9. Fees: Credit cards may come with various fees, such as annual fees, late payment fees, balance transfer fees, cash advance fees and foreign transaction fees. Understanding these fees can help you avoid unnecessary expenses and understand how much your credit card really costs you.
  10. Rewards and benefits: Many credit cards offer rewards and benefits, such as cash back, travel points, discounts or exclusive perks. Choose a card that aligns with your spending habits and offers rewards that you can maximize.
  11. Credit card fraud protection: Credit card fraud might occur if someone uses your card or card information to make unauthorized transactions. Most credit cards offer some level of fraud protection. This may mean that you won’t be liable for unauthorized charges if you report them promptly.

First Credit Card Tips and Tricks

In addition to the credit card basics, there are plenty of tips and tricks you can use to spend responsibly while building your credit.

Find the right card

There are tons of credit cards available on the market. It’s vital to choose a credit card that  works with your needs and spending habits. Look for cards with no annual fees, low interest rates (APRs) and rewards that match your lifestyle. The right card is different for everyone.

Keep in mind that you may not be approved for every credit card you apply for, especially if it’s your first one. Some cards require certain credit scores or a stronger credit history before you can access them. Student cards or credit-building cards are great choices for your first credit card.

Pay your full statement balance  

If you can, you’ll want to pay your statement balance in full (or as close to it as possible) each month to keep your interest down and avoid carrying a high credit card balance. It also helps ensure you don’t go over your limit. Keep in mind that payments made close to a holiday or the weekend might take a couple days to show in your account. 

Embrace a lower credit limit

When you open your first credit card, it’s likely you’ll be offered a relatively low credit limit. This limit represents the maximum amount you can charge on the card. Although a lower limit isn’t ideal in emergencies, it can help you manage your spending and avoid taking on excessive debt. As you use your card and gain additional income, you can request a credit limit increase.

Avoid cash advances

Credit cards often allow cash advances, which is when you withdraw cash against your credit card limit. But users, beware! Cash advances typically come with high interest rates and fees, and you may also have a lower limit. Avoid using your credit card for cash advances unless it’s an absolute emergency.

Monitor your statements

You should be checking your statement monthly to identify your balance and minimum payment amounts. However, it’s also important to go deeper. Review your credit card statements for any errors, unauthorized charges or fraudulent activity. If you spot any issues, report them to your card issuer immediately.

Resist impulse spending

Having a credit card can make it easy to indulge in impulse purchases, but this is how debt can snowball. Before making a non-essential purchase, take a moment to consider whether it fits into your budget and financial goals.

Choose and Use Your First Credit Card Wisely

Opening your first credit card is a significant step toward building credit and financial independence. say " By understanding credit card interest, fees and the other basics, choosing the right card and using it responsibly, you can make the most of your credit card while avoiding major mistakes. Remember that a credit card is a tool to enhance your financial life—not a ticket to unlimited spending. 

If you’re ready to apply for your first credit card, check out Navy Federal Credit Union’s credit card options for new borrowers. Our range of cards can help you earn rewards, enjoy competitive rates and spend with ease.

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This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.