A credit card is a big step and will require some changes in how you approach your lifestyle.
You may have some prior knowledge about handling a credit card and using them. However, there are small details that most resources out there don’t tell you.
They don’t tell you vital information that helps you choose the right credit card as a first-timer.
An understanding of your options and the details will help you make an informed decision.
Things to Consider Before Getting a Credit Card
For many people, their first credit card is their starting step towards building a good credit score. Negative credit scores can ruin your financial options for many years to come. It’s best to stay disciplined when using such a powerful financial tool.
Your choice of a credit card also affects the difficulty of managing the card, so it will matter greatly as you build your score.
Why Not a Debit Card?
A debit card comes with a little more security in that you aren’t dealing with credit. However, it limits you to only what you have in the bank at the moment.
Credit cards have an extra layer of security. When an ill-willed person gets a hold of your debit card, they can use the details to wipe your account fast. You can call the bank and coordinate to get your money back, but it will take some time, leaving you with almost nothing in case of an emergency.
When you’re handling a credit card, it’s not your money at stake, and you can easily dispute any fraudulent charges. The issuer cares about their money and makes it a priority to avoid any fraud.
It’s also easier to get a replacement credit card from your issuer if it gets lost or stolen, compared to debit cards which can take weeks.
Credit cards also don’t charge anything extra for disputed fees, and you won’t have any liability.
Check fees and Interest Rates
Let’s move past debit cards and consider one of the biggest factors in your credit card choice. High fees can make handling a credit card difficult.
Before you choose a credit card, you have the option to check the fees and interest rates of each plan. This information is available in the online application fee of every credit card.
If you’re applying physically, you’ll see it in a slip of paper along with the other documents. Here is the general information you should find there:
- Late fees: The amount they charge you if you’re late or fail to pay the minimum amount.
- Foreign transaction fees: These are extra charges for using the card for purchases outside the US.
- Annual fee: This fee is for maintaining the credit card services each year.
- Annual percentage rate: The amount you’ll pay on interest if you have credit carried to the next month. You might see different numbers here as the rates depend on how you’ve used the card.
It may all seem like an expensive cost when put together, but the truth is that most of these are avoidable. You can choose starter cards that don’t have annual fees, and others don’t charge foreign transaction fees.
You’ll also only get an extra charge with cash advances or balance transfers which shouldn’t be an issue if you don’t use them. If you pay on time, you also won’t have to worry about getting any late fees.
You also won’t have to worry about interest rates if you make complete payments. By making payments in full, you won't gain any interest.
Shopping For a Credit Card and Applying
To start with, you won’t gain access to credit cards with high limits or those with enticing rewards. These cards usually get offered once you’ve proven that you have an excellent credit record.
The credit card issuer will often recommend these cards once you reach that point. Others are only accessible if you meet the minimum income requirements.
Secured Credit Card
When choosing your first card, you’ll want to look for starter cards that offer the best benefits. Many of these cards don’t have annual fees, and they have decent rewards. If you’re starting with no credit, one option is to use a secured credit card. You can apply for a secured card even with no prior history.
How they work:
- You’ll place a cash deposit which will become the limit of the card. For example, if you pay $300, that will be your credit limit. It mitigates the risk as the issuer can take from your deposit if you fail to make payments.
- You are backing the card by depositing money, with your cash acting as collateral if you don’t make payments.
Secured cards are the option for people who have little or no credit score. Most issuers will accept these applications due to the collateral.
Due to its limitations bound by your deposit, these cards often have lower credit limits. They also generally charge higher fees. It is an option reserved for those who want to improve their credit scores and establish a good history.
Pre-Qualification and Pre-Approval Credit Cards
You’ll often receive pre-qualification offerings through email, calls, and other messaging tools. Some issuers work with other companies like credit bureaus to take a look at your basic information. If they determine that you qualify for an offer, they send you an invitation.
A pre-qualification doesn’t immediately mean you’ll get the card; you still have to apply through the standard means.
Before applying, check if their fee structure is something you can work with. Also, avoid making an application immediately if you're not yet sure.
When you apply, the company will make a hard inquiry which will reflect on your credit rating. It can negatively impact your score if you back out or if you don’t follow through on the application.
There are also pre-approval cards reserved for those actively seeking their first credit card. Many credit card companies have a pre-approval tool available online. You place your information in the tool, and it will calculate your chances of success.
Again, the pre-approval doesn’t mean you’ll get your card, as you still have to go through the normal application process.
It’s a way to save time by avoiding cards you aren’t qualified for and narrowing your options and it doesn't affect your credit score.
Student Credit Card
Student cards are a smart choice for students who want to establish a good credit score early on. Many of these credit cards require that you maintain a good GPA during your stay in college.
Some adults who go back to college also apply for these cards due to better fees and limits. You can easily apply for a student card and can get discounts on food and streaming services, which are essential for student life.
Some cards even offer a cashback when you show the issuer you have good grades. These cards also don’t need any special requirements. You can apply even if you have no credit history.
After you graduate, you won’t lose the card. There’s no reason to let it go as you are still able to use it after. It will also reflect on your credit score and history if you’ve shown good standing with the student card. It helps when you're applying for other things in the future, like higher limit credit cards or house loans.
If you find that the credit limit is too low, you can approach your issuer. You’ll already likely have a new job at the time which will bump up the credit limit significantly.
There may also be upgrades available that improve the card's current reward scheme. Doing so requires no hard inquiry, so it doesn’t affect your score.
Fair Credit Card
The word fair refers to people with fair credit scores. It is for people who have a credit score of around 580 to 669.
Since these cards fit people with a fair credit score, they offer better rewards than most starter cards dealing with people with no scores.
As you increase your score, they also unlock more benefits. These benefits can range from cashback and discounts. You’ll receive a catalog showing the options you have, thanks to your higher credit score.
Some people may view fair scores negatively as it means you have a below-average credit score. Some issuers prefer people with good credit scores, but fair can qualify for much more than those without any credit scores.
The trick is to continue improving your credit score in the next few weeks. The longer you can maintain good standing, the faster you’ll get to better credit card offers.
Rewards
While some credit cards have simple rewards, some match your habits. For example, some credit cards give you discounts for using the card for travel tickets.
These cards have partnerships with Amazon and airline companies. Some even offer cashback during use, allowing you to buy at a discount while building a positive credit score.
You can choose a card that matches your lifestyle, making it easy to transition to using it. It’s a way to build a good credit score even if you’re still in college.
Here are some examples of credit card rewards:
- More air travel miles with partner airlines
- Cash backs for payments like groceries or gas
- 0% interest rate at a set period
- Gift cards for restaurants, online stores, and retail stores.
- Insurance for rentals
Don’t Settle
Don’t be afraid to shop around before settling on a card you like. While you can check different cards, only apply if you’re sure it’s a credit card you want.
Credit cards are abundant in the market. There will always be a chance that the next credit card you check is better than the one you are eyeing right now.
The issuer will check your credit score on every application which reflects on your account.
If you apply too much, it could reflect negatively on your score. Making multiple applications within a short window reduces the issuer’s confidence in your ability to pay them.
Some may see it as a red flag, as this behavior is often associated with delinquent cardholders. It may prevent you from getting the approval.
Rejection
In case your application gets rejected, don’t fret. The law requires issuers to give you the information on why you weren't successful.
If you don’t find the reason in the documents citing your rejection, contact your issuer. They will talk to you or send you an email clarifying the reason.
Here are some common reasons for rejection:
- Low credit score
- Bad bills payment history
- Drastic changes in income
- Closed accounts that drastically change your credit or income history
- Too many applications within a short window
Some first-timers often experience rejections because they’ve been applying for a credit card within a short window. The best option to do at that point is to wait several months before applying.
Others also try to apply for credit cards with a low chance of approval with their current situation. Make sure to choose a card that fits your preferences and has a good chance of success during the application.
If you need to build your credit score, spend the next few months diligently paying bills and other sources of credit. Avoid making large purchases that could increase your debt or lower your income.
Another option of building credit is through a credit-builder loan. You can apply with your credit union to help improve your credit. These loans are for credit scores and not necessarily for a car or a house. Doing a combination of these good practices will affect your score.
You Can Get a Credit Card
If you’re deliberating on how to choose a credit card, you have to note its benefits and fees. A card with expensive fees will make it hard for you to build a good credit score in the long run.
You must also choose a card that fits your lifestyle or has rewards you can take advantage of.
Do your research, and make sure to narrow down your options to one you can reasonably apply for.