Getting your very first credit card is exciting. For many young adults, it’s the next best thing to getting your driver’s license or turning 18. But, although credit cards can be fun to have, they also bring a lot of new responsibility.
Here’s the short version of what happens when you get your first credit card: The credit card comes in the mail, you activate it, make purchases, get your credit card statement, and pay the bill. Knowing the details that happen in each step will help you avoid a lot of credit card fees, credit card debt, and long-term credit damage.
Activating Your Credit Card
Soon after you’re approved for your first credit card, your card issuer sends a credit card with your name on it to the address on your credit card application.
On the front of your card, there will be a sticker with the phone number to call or the web address to visit to activate your credit card. Activation will require you to enter your credit card number, all or part of your Social Security number, your ZIP code, or some combination of this information.
You won’t be able to use your credit card until you activate it.
Understanding Your Credit Card Agreement
In the envelope with your credit card, you’ll get a credit card agreement. The agreement is a long and detailed document that includes the terms and conditions of your credit card. Your credit card agreement explains features of your account, how and when you’ll be charged any fees or penalties for your credit card, and how to handle disputes with your card issuer. It will also include a few terms that are important to understand:
- Annual percentage rate (APR): The total cost of borrowing with your card, including interest and fees (the lower, the better)
- Credit limit: The maximum amount you can borrow with your card
- Fees: Explanation of any annual fees, penalty rates, late fees, or other costs associated with your card
- Minimum payment: The amount you must pay every month to avoid penalties
- Grace period: The amount of time you will have between the closing date of your billing cycle and the date your minimum payment is due
This isn't an exhaustive list of terms, but those are some of the most important ones you should know in order to avoid racking up fees and hurting your credit score.
Tips for Using Your Credit Card
Your credit card account has been assigned a credit limit—the maximum total balance you're allowed to charge on your credit card. You can make purchases or charges up to your credit limit. The only way to exceed this limit is if you opted in to having over-the-limit charges processed. If not, your card will be declined for any purchase that would put you over your credit limit. Even if you’ve opted in, your credit card issuer will likely only let you charge a certain amount past your credit limit, and you might receive a fee or penalty APR.
Even though you can charge up to your credit limit, that isn’t the most responsible way to use your credit card. Your card issuer may take back some of your credit limit amount if you run up your balance too soon. Using too much of your credit limit also harms your credit score, the number that tells lenders how risky you are as a borrower. The more of your credit you're using every month, the more risky you look—even if you pay your balance in full—and your score will reflect that.
Lenders like to see your credit card utilization ratio—the percentage of your credit limit you spend each month—stay below 30%. The lower you can keep this percentage while still actively using your credit card, the better it will be for your credit score.
When you make a purchase, the credit card terminal will check with your credit card issuer to make sure your credit card is valid and that you have enough available credit for the purchase. Once your transaction is approved, you can sign the screen or the printed receipt, complete the transaction, and take your purchase home.
How to Make a Credit Card Payment
A few weeks after you get your credit card, you’ll receive your first bill in the mail. Your billing statement will detail the purchases or charges you’ve made to your account and list the minimum amount that’s due. It will also show your payment due date. Be sure you review your statement and confirm every transaction listed. If you see anything you don't recognize, alert your credit card issuer immediately.
You have to pay at least the minimum payment by the due date, or you’ll be charged a late fee. Miss two payments in a row and your issuer may apply the penalty rate to your balance. If you never pay your balance at all, your credit card will eventually be charged off—meaning your lender stops allowing you to use your card while still requiring you to pay it off—and eventually sent to a collection agency.
Make sure you send your payment far enough in advance so that the credit card issuer receives it before the due date. The credit card issuer can charge a late fee up to $39 if your payment is received after the due date. Because of mailing and processing delays, this can happen even though you mailed it before the due date.
If you make an expedited payment on your due date and it requires extra help from a customer service representative, your card issuer might charge you an expedited-payment fee.
Paying Your Card by Phone or Online
For added convenience, most credit card issuers also let you make payments by phone and online. To pay by phone, call the number on the back of your card and follow the prompts.
To pay online, you'll need to visit your card issuer's website to set up an online account and connect a bank account for making payments. This usually only takes a few minutes, but you may need to go through additional steps to verify your bank account. When you are ready to make an online payment, your card company will usually explicitly state the date and time your payment must be scheduled in order to be counted on time (for example, "Payment must be made by 8 p.m. ET on the payment due date"). You can also set up your account to pay automatically on a certain date each month.
Even though you’re allowed to make only the minimum payment, it’s best to pay your balance in full at the end of every month. That way, you avoid paying interest on the account, and you keep yourself from accumulating credit card debt. The habits you establish now can significantly affect your long-term financial health.
Consumer Financial Protection Bureau. "Requirements for Over-the-Limit Transactions." Accessed Jun 18, 2020.
Experian. "What is a Credit Utilization Rate?" Accessed June 18, 2020.
Experian. "What Is a Penalty APR?" Accessed June 18, 2020.
Consumer Financial Protection Bureau. "Why Did My Credit Card Issuer Increase My Late Payment Fee?" Accessed June 18, 2020.
Consumer Financial Protection Bureau. "Can My Credit Card Company Charge a Fee Based on How I Paid My Bill, Such as for Making a Payment Over the Phone?" Accessed June 18, 2020.