Getting your first credit card can be a very exciting time, but it can also be a bit overwhelming. A credit card is essential to building your credit history and your overall credit score. If you are new to the world of credit cards, you might be confused with all the options out there. The goal of this article is to clear up all the confusion so you can make an educated decision on which card would be best for you.
Remember, before you even think about getting a credit card, you need to make sure that you are going to be responsible with. The last thing you want is to drive yourself into thousands of dollars worth of credit card debt and tank your credit score at the same time.
Understanding The Basics
When you sign up for a credit card, you are agreeing to pay a certain amount of interest for a specific credit limit. This is called a revolving line of credit, because each month you are able to use it assuming you are still under your limit. If you reach your limit, then you can no longer use the card. Once you pay back some of the balance, you are then able to use the card again. Each month, your outstanding balance is subject to interest.
Credit cards are convenient to use, and are more secure than carrying cash. When you use your credit card, the embedded chip must be decoded, decreasing the chances of fraud.
Setting Realistic Expectations
In order to find a card that works best for you, you will need to ask yourself why you want a card in the first place. Is it because you want to build your credit? Perhaps you would like cash back? Maybe you want travel rewards? Once you have assessed the reasons why you want a credit card, it is easier to start looking for the right type of card for your needs. Some credit cards require the holder to have exceptional credit. This provides the best benefits, limits, and rates for the most part…but considering this is going to be your first credit card, you likely won’t get approved for those, so don’t set unrealistic expectations right off the bat.
Interest Rates Will Be High
If you are planning on paying the full balance each month (like you should), then the interest and fees charged may not be of the highest importance. Just know that interest rates are typically high for the first card until you can prove you are a responsible card holder
Credit Limit Will Be Low
Your first card will come with a low credit limit so that the company can see if you are going to be responsible for the balance each month. The card company may then increase your limits after a few months of responsible use.
No Annual Fee
Most credit card companies will take advantage of those new to the credit card world and try to tell them the only way to get a credit card is if they pay an annual fee. This is not true. There are plenty of credit cards you can get that don’t have an annual fee. Just tell them straight away that you aren’t willing to pay an annual fee and if they won’t waive it you will just move onto the next company.
You Might Have to Settle For a Secured Card
There’s a chance you might have difficulty getting an unsecured card that has the rewards you are looking for. In that case you should consider getting a secured card. They work in the same way an unsecured card does, except you have to pay the balance beforehand. You load the card with a certain amount of money, and then you are free to use it at your leisure. If your card gets stolen, most of these secured cards have fraud protection.
These cards are typically marketed at people who are trying to build their credit. They are a great place to start. After a few months of use, you will be able to upgrade to an unsecured card.
How Many Cards Should I Get?
Every situation is different. Good advise is to only get as many cards as you need. If one card provides you with a large enough credit limit that you can easily pay off each month, then you don’t need to get more.
If you are trying to build your credit, then getting many cards over the course of a few years is a great idea because it will increase your overall credit limit (which is a factor in credit score). However, if you open too many up at one time, it has a negative impact.
Credit Cards and Your Credit Score
Over time, credit cards (when used properly) will build your credit score. If you are planning on making any large purchases like a car or a home, having a great credit score can help you get lower interest rates and qualify for the things you want. A lender is going to make sure you are able to pay back your current debts before issuing you a loan. They will also make sure that you are paying on time. This is also where they check to make sure you do not have any outstanding balances that you are not paying. They want to make sure that you are not a liability, but an asset to them. They call this being “credit worthy.” Maintaining great credit is one of the best ways to have access to the lifestyle you desire.
When you go to apply for your first credit card, make sure you do your homework. There are many free sites on the internet that will compare the cards for you. Make a list of your priorities such as the APR, cash back, rewards, and annual fees. Once you have an idea of what your financial objectives are, you will be able to pick the right card for your needs.
Remember, these cards can either help you or hurt you. Only use what you know you can pay back monthly. Only paying the minimum balance each month is not a good strategy. You may find yourself behind on payments and it will take years to pay back all the debt. Be wise, realistic, and most importantly, have fun shopping around for your first card!