NEW YORK (MainStreet) — Most people realize that going on a shopping spree the day after your first credit card arrives in the mail is generally a recipe for disaster. However, letting the card gather dust in the very back of your wallet can be just as counterproductive.
“You have to use the card in order to establish a payment history,” Beverly Harzog, a credit card expert with Credit.com, says. And, as you might already know, you’ll have to establish a payment history to build your credit score, which will help you qualify for lower interest rates on loans and better credit card rewards programs, among other things.
Of course, while young American may know they need to pay their bill off on time or avoid overdoing it, they might not know the best ways to use their very first card.
“Unless they’ve been taught by their parents, they don’t always know how to use it,” Harzog says.
MainStreet talked to credit experts about what first-timers should do to avoid potential pitfalls and swiftly boost their credit score once that first piece of plastic arrives in the mail.
Charge items, but stay within 5% to 10% of your credit limit at all times.
As reported, your credit score isn’t only affected by your payment history. Most credit scoring models tabulate scores using four other criteria: your debt to credit ratio; the length of your credit history; the number of accounts you’ve opened and, finally, the type of accounts (for instance, a mortgage versus an auto loan) you’ve got on the books.
While you can’t really directly influence the length of your credit history or the number and types of accounts you have with your first credit card, using it will impact your credit utilization ratio, the amount of debt you currently carry versus how much credit you have available to you.
John Ulzheimer, president of consumer education for SmartCredit.com, says those who walk amongst the credit elite typically only utilize 7% of their total credit limit at any given time, though that ratio, he admits, is often difficult to maintain.