6 things I wish I knew when I got my first credit card

Getting your first credit card is exciting, but it’s also a responsibility. Read more to empower yourself to use your credit card to build your credit score.
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Imagine: You’re two months into your first year in university. You’re doing well in classes and even better socially. Everything’s going well until one day when you get a call from your credit card company. They demand you make missed payments — payments that you’ve forgotten among your studying, partying, and the half-dozen commitments you have to student organisations.

I can tell you that this situation is no fun. Trust me, I’ve literally been there. After that unpleasant conversation with the credit card company’s representative, I began learning more and more about handling my credit card. As that knowledge grew, I wondered how different the rest of my first year would have been if I’d known how to manage my first credit card before I even got it.

Here, I’ll tell you everything that I wish I’d known when I got my first credit card.

1. Find a card that you’ll qualify for

Here’s a little paradox about credit cards: You need a credit score to get a credit card, but you can’t build your credit score without a credit card. When I was looking for my first credit card, this confused me. Where was I supposed to start?

As you can imagine, lenders don’t want to give credit to people who have no history of making repayments. One way you can establish that payment history is by applying for a credit builder card. Alternatively, you may be able to get a student credit card if you’re going to university.

However, both student credit cards and credit builder loans have a couple drawbacks: high interest rates and low credit limits.

2. Make timely payments to avoid building interest on your balance

Your first credit card will have a high interest rate. Mine certainly did. In fact, starter credit cards or student credit cards have interest rates as high as 40%. Why does this matter? Because if you don’t pay your credit card’s balance in full, the interest on your balance will grow quickly. This means you’ll have to pay back more than you initially spent.

When my credit card company finally got in touch with me, I’d accumulated over £100 in interest on my credit card debt. That made me realise how important it was to make timely payments. Indeed, your payment history is the most important factor influencing your credit score. Not only will you damage your credit score if you miss payments, but you’ll lose money to interest payments.

Related read: How long does a missed payment stay on your credit report?

3. Minimum payments can hurt you

When I received my first credit card statement, I saw a line that said “minimum payment: £25.” And I thought, "great, I only have to pay £25 and I can keep spending like normal.” Oh, how wrong I was.

Minimum payments are the lowest amount you can make to stay in good standing with your credit card company or bank. It’s usually a percentage of your total balance, with a floor of a flat fee.

What I soon realised was that if I only make the minimum payment, I’ll still need to pay the rest off. And to add insult to injury, that remaining balance was growing by the day thanks to my first credit card’s high interest rate.

Finally, if you’re only making the minimum payment on your first credit card, you’ll be accumulating debt. This can lead to a debt-to-income ratio that’s far from what lenders want to see, making it difficult for you to get other credit products.

As we said, paying your balance on time and in full is essential for building a good credit score. Not only that, it’s essential for ensuring you don’t lose hard-earned money to interest charges.

To learn more about minimum payments, check out our resource on the topic: This is how credit card minimum payments keep you in debt

4. Stay within your credit limit

When you get your first credit card, your lender will give you a credit limit. This is the maximum amount you can spend on your card. For most starter credit cards, credit limits can range from around £200-1,000. However, this isn’t like a speed limit, where everyone drives faster than the posted limit.

You want to avoid using more than 25% of your credit limit at any given moment. But if you’re anything like me, you’ll end up with a low credit limit to start out with. This made me wonder, ‘is a credit card really helpful if I can only spend £70 on it?’ I didn’t understand how to stay below 25% of my £300 over the course of a month.

What I was missing was that you can make payments as often as you need. For example, if I spent £65, I would have been nearing 25% of my credit limit. All I needed to do was pay that £65 off. At that point my credit utilisation ratio would drop back down to 0, and I could use my card again if I needed.

Next to making your payments on time, your credit utilisation ratio is one of the most important things to pay attention to. When you use more than 25% of your credit limit at a time, it signals to lenders that you’re dependent on credit. This can make them hesitant to give you a traditional credit card or other line of credit further down the line.

Related read: What are the pros and cons of increasing your credit limit?

5. Watch out for fees and avoid them when you can

When I got my first credit card, I was fortunate that it didn't include any annual fees. As someone who, at the time, didn’t have much knowledge of the financial world, I didn’t realise how easy it would be for a bank or credit card company to give me a card with annual fees tacked on. While these fees tend to be low, it’s still an unnecessary cost.

When you’re looking for your first credit card, take the time to shop around. You should be able to find cards that don’t have annual fees. Be on the lookout for these other fees too:

  • Late fees: Late fees are usually no more than £12.
  • Cash withdrawal fees: Your cash withdrawals could be subject to interest even higher than your normal rate. You should avoid using your credit card to access cash unless it’s an emergency.
  • Foreign transaction fees: This is important if you’re planning to study abroad or travel extensively.

If fees are unexpected, they can throw your finances into a tailspin. Make sure you understand your card’s fees and that you avoid unnecessary ones like annual fees.

6. Make sure you’re eligible before applying

Finally, when I got my first credit card, I wish I had known what the eligibility requirements were. For most people, meeting the eligibility requirements for their first credit card won’t be a problem. That said, it’s important to understand some of the distinctions and ensure you meet them before you apply.

Some common requirement that you’ll see with almost every starter credit card are that you:

  • Must be 18 or older
  • Must be a UK resident. For some cards, you may need to have been a UK resident for the last three years.
  • Haven’t filed for bankruptcy, haven’t had a default, and don’t have a county court judgement (CCJ). For the vast majority of people applying for their first credit card, this won’t be an issue.

Depending on the type of card you apply for, you may see other eligibility requirements as well. For example, most student credit cards will require that you are enrolled in an eligible university, and some starter credit cards may have income requirements.

While you’ll probably meet the eligibility requirements for your starter credit card, take the time to double check before applying. Banks and credit card companies will do a hard credit check after you apply. This causes a slight drop to your credit score, and if you’re rejected, you’ll have hurt your credit score without gaining anything.

Build your credit with the Pave app

When I got my first credit card going into university, I lost track of my payments and spending. It damaged my credit score early on and forced me to work extra hard just to repair the damage I’d done.

Fortunately, the Pave app can help you avoid that scenario. By tracking your bank accounts and upcoming bills, Pave can help you avoid missed payments and the interest that can come with them. Plus, we’ll share your timely payments with credit reference agencies to actively build your credit score.

Download the Pave app and get started building your credit in just three minutes.

This article is intended to help readers gain a greater understanding of some important factors to consider when getting their first credit card. The experience of the author may be embellished to ensure these points are made clear to the reader.