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Author: Kirsty Lamont |

4 rookie mistakes to avoid with your first credit card

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Whether it’s just landed in your mailbox or you’re still comparing options, there’s a real sense of excitement about getting your first credit card. After all, it can be a seriously useful addition to your wallet when it comes to paying for everyday expenses or big ticket items.

And given the introduction of comprehensive credit reporting in Australia from July, the way you use your first credit card could help you on the road to building up good credit and grabbing better deals on a car loan or even your home loan in the future.

But like anything you use for the first time, it can be easy to slip up. So to keep your credit card from becoming a future headache make sure you give these four rookie credit card mistakes a miss.

Maxing out your credit limit

With a shiny new card in your wallet, it can be really tempting to look at your card’s credit limit as an invitation to spend. Maxing out your credit limit is one of the most common mistakes first time card owners make, and one which could not only land you in debt, but also hurt your credit score.

That’s why it’s a good idea to work out a realistic personal budget with all your income and expenses, even before your new card arrives. That way you’ll know exactly where to draw the line when it comes to spending money on your card.

Making late payments

As a first time credit card holder, you won’t have had to pay a credit card bill before, but it’s really important that you pay your bill by the due date. Because there are different number of days in each month, the due date for your payment could change from month to month, but making a late payment is a habit you’ll definitely want to avoid when the outcomes include having to pay late payment fees, losing your interest free days, paying interest on your outstanding balance, and even damaging your credit score.

The easiest way to avoid ever missing a payment is to automate them through your online banking or banking app. Alternatively, some banks offer a payment alert notification system in their online banking platforms which will ping you to let you know before your payment is due, or you can just do it the old fashioned way by setting up your own reminders each month.

Only paying the minimum balance

When your credit card statement comes in each month, you’ll notice both a closing balance and a minimum payment option. While it can be tempting to only tackle the minimum payment, you have to remember that every day that you don’t pay off that balance you’ll be paying interest on it. So let’s say you decided to put a $500 weekend trip away to Melbourne on your new credit card which has a 17.04% purchase rate. If you were to only make the $25 minimum possible repayment on the card each month, that one weekend away would take you two years to pay off the balance and cost you $82.57 in interest alone.

That’s why as a first time credit card holder, it’s good to get into the habit of paying off your balance in full each month. You want to avoid getting bogged down in debt at all costs and for your first credit card, ditch fancy rewards cards which usually have high interest rates to match. Opt for a low rate card, one which has an interest rate below 13%, like Greater Bank’s Visa Credit Card, which means that more of your repayment is going towards paying off your balance, not towards interest charges.

Withdrawing cash with your credit card

Another common trap many new cardholders fall into is treating their new piece of plastic like a debit card and using it to withdraw cash. Whatever you do, don’t. Credit cards generally have a different interest rate for cash advances, which can be as high as 30%. But that’s not all, you’ll also have to pay a cash advance fee, which is usually a percentage of the withdrawal amount, and unlike purchases, there are no interest free days on cash advances, so you’ll start paying interest from the moment you withdraw the money.

The best way you can avoid getting stung by a cash advance rate is to keep your debit card handy for the times when you can only pay by cash and leaving your credit card for making all your other purchases.

Kirsty Lamont is a Director at financial comparison website She is passionate about helping Australians get a better money deal and helping them make better, more informed choices.