Gen Z: A Guide to smart credit card habits
Quick insights
- A student or starter credit card could be a helpful way for young adults looking to begin building credit responsibly.
- Habits like setting up autopay and keeping balances low may support healthy credit and help avoid debt.
- When possible, try to avoid things like spending close to your credit limit or only paying the minimum payment, which could result in added interest costs.
If you’re part of Gen Z and thinking about getting your first credit card, you’re not alone. If you were born between 1997 and 2012, you may consider yourself part of Gen Z, so when we refer to young adults in this article, that’s the group we mean.
As you begin to explore how to build credit and manage your money smarter, credit cards can be a helpful tool when used responsibly. With healthy habits, a credit card can help you build a strong credit history, earn rewards and learn financial discipline.
In this article, we’ll break down the basics on how to choose the right card for you, manage your spending and avoid common mistakes.
Choosing the right credit card to build credit early
Selecting your first credit card is an important step, and it’s worth taking the time to find one that suits your current financial situation. Certain cards, such as a student credit card or a starter credit card, are typically designed for those with limited or no credit history. This could be a useful option for young adults and students just starting out. Before applying, you may want to consider the following when evaluating your options:
- Some starter credit cards like the Chase Freedom Rise® Credit Card are geared toward people building credit for the first time and offer features to support healthy habits.
- A student credit card may include basic rewards or tools to help you track spending and stay on budget.
- Review the terms carefully and consider whether the card’s features align with your current income, spending and financial goals.
- Pay attention to the introductory APR and ongoing interest rates. If you carry a balance every month, having a lower rate can help you save money on interest. Keep in mind that starter cards typically come with lower credit limits initially.
Smart spending habits to stay out of credit card debt
Building healthy credit is about more than having a card; it’s about how you use it. Small habits can make a big difference in the long run. To stay in control and avoid accumulating unnecessary debt, here are some helpful habits to consider:
- Track your spending regularly: Apps or spreadsheets can help you stay on budget and recognize patterns. Keeping tabs on your purchases might also reveal categories where you could cut back.
- Only spend what you can afford to pay off: When possible, treat your credit card like a debit card. Just because your card gives you a certain limit doesn’t mean you should use all of it. Try to only charge what you know you can pay off in full when the bill comes.
- Set up automatic payments for the full statement balance: Autopay helps keep you accountable and avoid missing payments on their due dates. This can help protect your credit score and avoid accruing late fees. If full payment isn’t possible, try to pay more than the minimum when you can.
- Keep your credit utilization ratio to 30% or lower: Your credit utilization ratio is the amount of credit you use compared to your total available credit. Using less than 30% of your total credit limit (e.g., keep spending under $300 on a $1,000 limit) shows loan providers you’re managing credit responsibly and could support a healthier credit score.
- Choose a card that fits your lifestyle: If you mostly spend on things like food, gas or streaming services, look for a rewards credit card that offers higher points or cash back for spending in those categories. For example, if you travel often (like for school breaks or family visits), a card that offers travel-related benefits, like points on flights, could align better with your habits.
Must-know money tips when using a credit card
If you’re using a credit card for the first time, you might want to have a small emergency fund as a backup so you’re not relying on credit for surprise expenses. Rewards can be satisfying but try not to overspend just to earn points.
Additionally, it can be a good idea to review your statements each month to catch any mistakes or subscriptions you’ve forgotten about. And while it might be tempting to apply for multiple credit cards at once, starting with one or two could help you stay organized while you’re learning the ropes.
Red flags and mistakes to avoid
Here are a few things to be mindful of when using credit cards:
- Only paying the minimum may lead to interest piling up faster than expected.
- Spending close to or over your limit could hurt your credit score, even if you pay it off later.
- Not checking your credit score might mean missing errors or early warning signs.
- Using credit to keep up with friends or trends can lead to overspending and long-term debt.
Overcoming common credit challenges
It’s completely normal to hit a few bumps when you’re learning how credit works. What matters most is how you respond. For example, if you apply for a credit card and are denied, you might try becoming an authorized user on a trusted family member’s account or applying for a card designed for people just getting started.
If you’ve overspent, try using spending apps to track your habits and set new limits. When emergencies come up, using savings instead of credit (when possible) can help you avoid accumulating long-term debt. Progress takes time, and learning from mistakes is part of the process.
In summary
Credit cards can be useful tools when you use them intentionally. Choosing a card that fits your needs, building consistent habits and being mindful of spending can help young adults establish credit and manage their money responsibly. You don’t have to do everything at once; starting small and staying intentional could help you grow your credit over time.
