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Plan Well, Retire Well

Saving and investing your money
First Credit Card - 1

Steps Towards Your First Credit Card

I was asked recently about how someone should go about choosing their first credit card. I remembered the first card I got and how poorly I handled it. I was so thrilled to have one and immediately made plans to buy a big color television set so I could watch the Olympics in color. Growing up, we only had a black and white set and a small one at that. My father did not see a need for color. However, I wanted one and saw that credit card as a means to get it.

I looked at that card as a means of additional income, not as a loan- and that is where my troubles began. I bought a large (for the time) television that I did not need and thought I could pay it off a little at a time. I was going to college and working part time and thought I could afford it. However, I could not, not with the way I spent money.

I went about credit all wrong back then. Here are the things I should have done, and you should do before getting your first credit card.

Take a look at yourself and your financial history.

How have you handled money in the past?

  • While growing up did you spend every penny as soon as you got? Does money still burn a hole in your pocket?
  • Are you a saver? Do You put away a portion of your allowance, gift money, and earnings? Savings allows you to have money when you want and need it.
  • How often did you ask your parents (or others) for money?
  • If you borrowed money from your parents or others, did you pay it back, on time, without whining or reminders?

If you are a spender, frequently asking others for money because you do not have it when you want it, think seriously about how having a credit card might cause you financial troubles when it comes time to repay the money you have already spent.

  • Education,
  • Family,
  • Status (latest clothes, trends, etc.)
  • Independence
  • Going out with friends to restaurants or clubs

None of your values are wrong; there is no judgment here. However if some of your highest ranking values include spending money for social reasons (status, going out), then you may want to think about how a credit card could cause you to overspend in those areas.

How are you planning on using your credit card?

  • Do you "need" it to get you from one paycheck to the next?
  • Are you looking for a way to build a positive credit history for the future?
  • Will you use it for "emergencies" only?
  • Will you use it to pay for spring break trips or gifts and clothes and pay it off over an extended period (small payments)?
  • Use it for all everyday expenses to get rewards and pay it off in full at the end of the month?

Figuring out how you will be using the card can help you decide if a card is an asset (a tool) or liability (burden) for you. Also ask can I afford it?

Do you have a spending plan that you maintain?

A popular financial guru says "A budget (spending plan) is telling your money where to go instead of wondering where it went." That is very empowering.

  • Does it contain savings?

Warren Buffet (a very wealthy man) is quoted as saying "Spend what you have left after saving not saving what you have left after spending." This is a vital and wise financial plan. Not many people have money left over to save but saving it first means it will be there when you need it.

  • Is it adequate for your needs- that is, are you spending money wisely or is there too much month left at the end of your money?
  • How will credit payments fit into your spending plan?

Finally, have you checked your credit bureau reports recently?

You are entitled to one free credit report every twelve months from each of the three credit reporting agencies. If you have not checked them, and you are getting ready to apply for credit, pull all three from*. After this, wait 12 months and then pull one credit report every four months for free reports all year long.

  • Check for incorrect items or negative account for credit. Be sure to correct these before applying.
  • Make sure you have a positive credit history that is at least six months old. Many creditors will not score a credit history less than that.
  • If you find items that need to be corrected, immediately contact that credit reporting agency.
  • If you have no credit history (depending on your age you may not) look at alternatives to a credit card for beginning your credit history. A small loan for a used car or another purpose may be the place to start.

If this sounds like a lot of work, it can be. Keep in mind that people often spend more time deciding on where to eat than on individual financial matters. Having credits cards is like having a loan in your wallet. Use them wisely and they can enhance your life, use them recklessly, and they can ruin your life.

*AnnualCredit is the ONLY site for truly free credit reports. IT was set up by the three major credit reporting bureaus to comply with with their obligations under the Fair and Accurate Credit Transactions Act (FACTA)

Watch for Part Two-Next Steps Toward Your First Credit Card

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