Have you ever had that moment when you realized “wow, I am an adult”? Sounds silly, but when you have that moment, you suddenly realize all the responsibility you now have. Being an adult in your own right is exciting, but let’s be honest…it can also be scary.
Chances are good finances are the most daunting thing on your mind. I mean, how are you supposed to get a credit card when you don’t yet have a credit history? The good news is you have quite a few options.
If you want to get a credit card and don’t have any credit history, just follow the steps below.
Start With a Secured Credit Card
The chances of you getting an unsecured credit card when you have no credit history is slim to none. This means you will need to start off with a secured credit card. These cards are great for anyone who doesn’t have credit history or who has a very poor credit score.
The downside of secured cards is that you need to have some cash to put down upfront. That cash will be tied up at the bank for as long as you hold the card. Although this may not sound like what you would think of as a ‘traditional’ credit card it can be a necessary first step to building up a good credit history.
Do Your Research and Be Patient
Before you get too excited and choose to go with the first credit card you see, you need to make sure you do your research. When you’re picking out your card make sure you read the fine print and compare cards for good features.
Be cautious of cards that have high interest rates or that charge monthly rather than yearly fees as these can greatly add to the costs of maintaining the card. Cards like these are likely to be the first ones presented to you as options, but keep hunting because better options are out there.
Some secured credit cards can have interest rates that match those of unsecured cards. You also want to consider cards that offer grace periods since a grace period gives you time to pay your balance without gathering interest. Grace periods are important for your first credit card because you haven’t developed the habit to pay your bill every month yet.
So take you time, compare the benefits and consider the cons with each card.
Guidelines For Your First Card
With your first credit card you are starting with a blank slate, so you need to make sure that the first impressions you leave is a good one. Being responsible and building up good credit with your first card will greatly benefit you down the road. Here are some good guidelines to follow when using your first card:
Pay On Time
Always pay your bills on time. Don’t make excuses or put it off. Each payment is just as important as the next or the last.
Pay The Full Balance
Pay off your outstanding balance(s) promptly each month so that you never accrue interest and don’t remain in debt. Remember, the longer you wait to pay, the more you will owe.
Keep a Low Balance
Try your best to keep your balance low. It’s best to keep your outstanding balance(s) at or below 30% of your credit limit, but keeping it under 10% will give you the best credit score. Your goal is to build good credit, and going higher than 30% can begin to damage your credit score, so it’s best to be avoided. Your credit utilization makes up 30% of your credit score, so be careful.
Keep an Eye on Your Score
It’s important to keep track of your credit score. It’s a good idea to check your score even before you get your first card, but after you get that first credit card you need to make sure that you are checking your credit score at least once a year. There’s no excuse for not doing so as you can go to annualcreditreport.com for a free credit report yearly. This website gives you a free credit report from all of the principle credit reporting agencies such as Experian, Equifax, and TransUnion.
Keep The Card For a While
Although the credit card you start out with may not be the one you really want, and it’s certainly a good idea to graduate to cards with better terms and interest rates, you need to be careful to not let go of that first card too soon.
An important part of your credit score is your credit history, which includes how long you have had a credit card account and what standing it’s in. If your card is in good standing, and as long as it doesn’t charge outrageous inactivity fees, it’s a good idea to keep your old account even when you get a better card. It never hurts to have extra credit card at hand, and if it keeps building up your credit score it can only be beneficial to you. Additionally, closing credit card accounts can have a negative impact on your credit score, which is exactly what you want to avoid.
Should You Get More Than One Credit Card?
The goal when you first start off with a credit card is to make sure that you build up a good credit history. For this reason, it’s a good idea to start off with just one card in the beginning. Use this first card to prove that you can use it wisely and responsibly. Give it some time, a year or two, and then you can make a decision about getting another card.
It’s beneficial to have more than one line of credit on your credit report. So as long as you do it responsibly, having a second credit card is probably a good idea. Unfortunately credit scoring formulas are kept secret so it isn’t possible to say how many lines of credit would be best for you without knowing your exact credit situation. However, it’s important to remember that each time you apply for a credit card an inquiry will be launched in your credit report, and each of these could deduct up to 5 points from your score.
The best method is just to be careful. Take your time building up your credit, proving that you can make payments on time and keep a low balance.
Your Credit Is Important, Don’t Damage It With Impulse Spending
A credit card is a big and exciting step into adulthood. It gives you a thrilling sense of independence, but you must be careful not to let it go to your head. Credit should not be used recklessly.
Although a credit card may seem like it gives you an infinite amount of freedom, you need to consider the ultimate costs. When you purchase something with your credit card you need to make sure that you consider how long it will take you to pay off the cost and how much interest you’ll gather in the meantime. If you aren’t careful, using your credit card can cost you far more in the end.