How to manage your first credit card’s low limit

Quick insights

• Many borrowers have a low credit limit on their first credit card.
• First time cardmembers can potentially still build up their credit even with a low limit on their card.
• Making payments on time and paying off your card’s balance in full may help to raise your credit score.

First time credit cardmembers often receive credit card limits on the lower end. Even if your credit limit is in the three-figure range, you may still have the opportunity to build credit and potentially increase your chances of getting a higher limit in the future. Below we cover a few things to consider when managing your first card’s credit limit.

Understanding your first card as a credit-building tool

Your first credit card may be one of the earliest tools you’ll have to build credit. You can apply for your first credit card when you turn 18, so it may be the first opportunity you have to start establishing your credit history.

Using your credit card responsibly could help you start your credit history off on the right foot. This might include using your card regularly and making payments on time. These actions can help to build your credit history and might positively impact your credit score.

Budgeting to prevent high credit utilization

Your credit limit is the amount of credit available for you to spend with your card. However, just because you have the credit, it may not be a good idea to use it all. Maintaining a healthy credit utilization ratio could potentially help you increase your credit score.

Credit utilization ratio is the percentage of available credit that you’re using. It is generally a good idea to try to keep your credit utilization ratio below 30 percent. For example, if your card’s credit limit is $1,000, you would want to try to keep at least $700 of your card’s credit unused. Keeping your ratio below 30 percent may positively impact your credit score.

Benefits of paying your balance in full

There are a few reasons why you may want to pay off your credit card balance in full every month. Paying your balance in full could help you:

• Interest charges: One compelling reason to pay your credit card balance in full is to potentially avoid interest charges. By paying off the balance in full, you can benefit from the interest-free grace period that many credit cards offer.
• Credit score: Your credit utilization ratio is a key factor in determining your credit score. Keeping your credit utilization low by paying off your balance can positively impact your credit score.
• Financial discipline: Paying your credit card balance encourages good financial habits and discipline. Most credit cards require a minimum payment each billing cycle.

Making only the minimum payment

Your credit card will have a minimum payment. This is the amount that you need to pay every month to avoid fees and charges. By paying only the minimum payment, you could potentially incur interest charges on your balance.

Understanding when balances are reported to credit bureaus

Credit card balances are reported to credit bureaus on a regular basis, typically once a month. The specific timing and process can vary depending on the credit card issuer. Most credit card issuers report your balance to the credit bureaus on or around the statement closing date, which is the last day of your billing cycle. This is not the same as your payment due date.

Credit card issuers usually report to one or more of the three main credit bureaus (Experian, Equifax and TransUnion) once a month. The exact date can vary, but it is generally consistent each month for a given account.

Missing payments and how to avoid them

There can be several reasons for missing a credit card payment—maybe you forgot the due date, you don't have the funds to make the payment or an emergency comes up. No matter the reason, there are some immediate and long-term effects for missing a credit card payment. They could include:

• Late payment penalties and fees
• Higher interest rates
• Negative affect to your credit score

If you’re concerned about missing a payment, your card issuer may have automatic payment options to help you pay your card on time. This will automatically withdraw funds from a linked account to make your payment on time. Automatic payments can typically be set up to cover the minimum payment, the balance in full or a set amount that you choose.

Some card issuers may even offer incentives for setting up automatic payments. Chase Freedom Rise^® cardmembers may be eligible for a statement credit if you set up automatic payments within the first three months of opening the card.

Weighing the pros and cons of earning rewards

Many credit cards allow cardmembers to earn rewards on eligible purchases. These rewards may come in the form of points, cash back or miles. How you earn rewards will depend on the card issuer and the card. For example, with the Chase Freedom Rise card, you can earn 1.5% cash back on most purchases with your card.

However, earning rewards should not come at the expense of good financial management and habits. If you’re spending money to earn rewards, but not able to pay off what you’re putting on your card, it may not be financially beneficial. It’s possible that any rewards you earn could be wiped out because of the interest charges you owe on your balance.

In summary

If you’re looking to apply for your first credit card, you may find that your initial credit limit will be low. But even with a low limit, you can still potentially build up your credit and start your credit history off on the right foot. Making payments on time and paying off your card’s balance in full may help to raise your credit score and can positively impact your chances of raising your credit limit in the future.