I opened my first credit card five years ago and have added more to my wallet as my credit score improved. Here are the rules I follow.
Many people celebrate wedding and work anniversaries, but one thing you may not think to reflect on is the anniversary of your first credit card.
I recently realized that it’s been five years since I opened my first credit card, the Citi ThankYou® Preferred Card (which is no longer on the market). This has me reflecting on how I went from zero to 10 credit cards in five years and from “credit invisible” to a good credit score that can qualify me for the best mortgage rates and auto loan terms.
I opened the ThankYou Preferred card in college after I had a steady part-time job, and a lot has changed since. For starters, I graduated college a while ago and now have a full-time job, living expenses and monthly bills. Plus I’m planning on reaching a few more life milestones in the short-term, such as buying a car and purchasing a house, that I didn’t even think about five years ago.
While a lot has changed in the past five years, there are some habits that have remained consistent. I’ve managed to never miss a payment or carry a balance with interest, which are two key actions that help my credit score.
Looking back, I couldn’t have imagined that I’d now hold 10 cards, but I did know that I wanted to maintain good credit so I could achieve my car and home ownership goals.
I may not have a perfect 850 yet — this often comes later in life with a longer credit history. I do, however, maintain a good to excellent credit score by following five key rules that help me responsibly manage my finances.
Here are my top recommendations that can help you improve credit and get your finances in order.
5 rules I live by to responsibly manage my finances
- Create a budget
- Always pay on time
- Don’t carry a balance
- Monitor your accounts
- Keep old accounts open
1. Create a budget
One of the most important financial steps you can take is to create a budget. By listing your income and expenses, you can keep track of where your money goes each month. This can help you achieve financial milestones, such as buying a house or car.
And if you’re someone who struggles with credit card debt, you can get a clear picture of your finances, determine any areas where you can cut costs and create a repayment plan.
I first started to budget after I moved out of my parents’ house and in with my partner. We manage shared expenses and work toward savings goals. Since then, I log every paycheck, savings deposit and expense in my budget.
2. Always pay on time
The most important factor of your credit score is payment history. Therefore it’s essential that you make every payment on time. Missed payments can also cost you up to $40 in late fees and significantly lower your credit score.
As a safety net, set up autopay for at least the minimum payment due. This ensures your account remains current and positive payment information is sent to the credit bureaus. I have autopay set up on all my credit cards, even though I manually pay them before the due date.
If you have a history of missing payments, consider opening a credit card with no late fees, such as the Apple Card or Citi Simplicity® Card. But be aware that late payments can still lower your credit score even if you don’t incur a fee.
3. Don’t carry a balance
Carrying a balance month-to-month is one of the most common credit card mistakes. While you may think it helps build credit, that’s a myth. Not paying your balance in full hurts your credit score and can result in debt if you fall behind on payments.
If you only make minimum payments toward your balance, it can cost you thousands of dollars. You should always pay your statement balance in full to avoid interest charges. Personally, I set up autopay for the entire statement balance.
However, paying in full may not always be possible, especially amid financial strain. In those situations, it’s important to reduce spending and consider any forbearance or assistance programs your card issuer offers.
4. Monitor your accounts
Millions of Americans fall victim to credit card fraud every year, and I was one of them. Several years ago I noticed a handful of small charges on my account that I didn’t recognize. The suspicious purchases were from out-of-state and a company I didn’t recall.
I didn’t notice these charges until about a week after they were posted to my account, but thankfully I got a full refund once my dispute was approved.
This event led me to set up alerts on all of my financial products, from credit cards to bank accounts. I created alerts for everything from out-of-state purchases and balance transfers to transactions over a certain threshold, so I could always stay on top of my accounts. I also regularly check my accounts.
Spotting fraud early can save you time and money in the long run, but it’s not easy to do on your own. Signing up for a credit monitoring service can provide you with an early notice of potential fraud, so you can take steps to protect your personal information. Services like CreditWise® from Capital One and IdentityForce® can make an informed decision before you sign up for a service. (Read CNBC Select’s list of the best free and paid credit monitoring services.)
5. Keep old accounts open
The first credit card you open can help you establish credit, but it may not be the best card for your spending needs years later. However, it’s important to keep your first credit card open so you avoid a potential decrease in your credit score. Closing an old credit card can lower the average amount of time you’ve had credit and increase your utilization rate — both possibly lowering your score.
Beyond a dip in your credit score, you may also miss out on exclusive offers. Card issuers often send out targeted offers to consumers that can be rewards or special financing related.
Several years after I opened the ThankYou Preferred card, Citi provided me with a 0% APR for seven months, even though I had cut back on using it. This allowed me to finance an education course I was enrolled in since I had no 0% APR cards at the time. Since the institution didn’t charge me a fee for paying by credit, I used my Citi card and paid for the course over seven months, interest free. (Be aware that some colleges and universities might charge a fee that outweighs any savings or rewards.)
Even though I’ve benefited from keeping my oldest account open, there may be some situations where it makes more sense to close or downgrade your card. That can include if the annual fee or interest charges are too high.