Blanchard, CFP and founder of Focal Point Financial Planning in Pleasant Grove, Utah, says he took out his first credit card at age 19 while serving in the Marine Corps, but then quickly closed it after hearing horror stories about credit card debt. “I didn’t really understand how it worked, how you build credit, or anything,” he recalls. You can keep your credit limit low
He says he wishes he knew that if you’re worried about overspending, you can keep your credit limit low on the card, which will cap the amount you are able to spend.
After he had a similar experience to Strobel in which his debit card information was stolen and his bank account was drained, he finally took out his next credit card. Now in his mid-20s, he was no less nervous about overspending and building up debt. “I didn’t really understand that if you pay it off, the interest rate doesn’t matter,” says Blanchard, now 30.
While that’s true, there is a major downside to this approach: A lower credit limit means you have less available credit. This can lead to a higher credit utilization ratio, which is the portion of your credit that you’re using, and can hurt your credit score. (Using much more than 30% of your overall available credit can have a major negative impact.) That said, once credit bureaus report that you have paid the balance down or off, the damage should disappear.
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