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Getting your first credit card as a young adult is the first step toward financial independence. Having a credit is beneficial for building your credit history, making large purchases, and emergencies.
On another note, it’s best to proceed with caution. Like many financial decisions, using a credit card involves risk as well as benefits. If you aren’t ignorant of the risks, you are a step ahead towards using a credit card the right way.
With so many options on the market, credit cards offer more than just a convenient way to make purchases. With cash back, rewards and other incentives, it was considered commonplace to have multiple cards. However, in this chart using Shiftprocessing data, we can see that the average number of cards per person in the US has dropped from 3.7 in 2009 to 2.7 in 2019.
This shift could be due to the more competitive credit card industry, where card issuers are offering even more incentives to retain their customers. On the other hand, it could also be a result of consumers using other types of finance rather than relying on credit cards.
When Should You Get Your First Credit Card?
Credit cards are an unavoidable part of modern life, and for many individuals, the benefits outweigh the drawbacks. When a person should acquire their first credit card is largely determined by how responsible they (or their parents) believe they will be with it.
The optimum time to apply for a credit card is usually before you need one. As long as you have the necessary money to repay your expenditures, college or shortly after graduation is a fantastic time to start using a student credit card. Many credit card companies offer cards tailored to students, but like with any credit card, it's a good idea to shop around and compare rates and restrictions.
It's not a problem if you've previously graduated. Now are a lot of terrific first credit cards out there for young professionals—just pay attention to the credit standards and start with one that has a decent probability of acceptance.
It's critical for new graduates to follow the criteria for building and maintaining a strong credit score, regardless of the sort of credit card they have. Credit scores are determined by a number of criteria, the two most essential of which are payment history (does this person pay their bills on time?) and payment history (does this person pay their bills on time?) and credit usage ratio (how much credit are they using at any given time in comparison to how much credit they have available?). When a person's credit cards are all maxed up, their credit utilization ratio is high, and their credit score suffers as a result.
First Credit Card with Good Credit – What are My Options?
If you already have good credit and are looking for your first credit card, you should find that there are actually plenty of options. Just because it is your first credit card, it should not hinder your application, since the card issuer will be looking at your credit score and history.
You should be able to find cards with no annual fee, reward cards and even cards with introductory rates. So, don’t rush into applying for the first card you find, take a little time to assess your options and only apply for the card that best suits your requirements and preferences.
First Credit Card to Build Credit – What are My Options?
If you have no credit report, there are some credit card options that can help you to build a credit score. These include student credit cards that are designed for those with no credit file. If you need to rebuild your credit, you could consider a secured credit card.
This does involve putting some money into a deposit account, which will act as security for your card. Most issuers set your credit card limit to the amount of your deposit, so there is minimal risk for the credit card company. If you default, they can simply take the funds from your deposit. However, the benefit of this is that each time you make a monthly payment, it is reported to the credit bureaus, helping to boost your credit score.
First Credit Card for Students – What are My Options?
There are a number of credit card companies that offer cards for students. These tend to have lower credit limits as students typically have a very limited credit history. However, it is possible to get student credit cards that offer some nice rewards.
For example, The Bank of America Cash Rewards for Students offers an introductory bonus and up to 3% cashback on your purchases with no annual fee. However, Bank of America sets your rate according to your creditworthiness. So, if you have no credit history, you are likely to be looking at paying 23% or more.
Can I Get First Credit Card With no Credit?
Getting a credit card when you have no credit history can be a challenge, but it is not insurmountable. There are a number of credit card providers who specialize in cards for those with limited credit. You will simply need to research your options. There is no point in applying for a card that has spectacular rewards and requires an excellent score, as there is little chance you’ll be approved.
However, it is quite simple to find more basic cards that have lower limits and fewer rewards that may be open to those with limited credit. Try not to be disappointed if you can only obtain a card with a very low limit, as you should see it as a stepping stone to build your credit. Every month when you make a payment, it will be recorded with the credit bureaus, building your credit history.
What First-Time Credit Card Users Need to Know?
Your first credit card can provide you with freedom, convenience, and opportunity all in one. Your first credit card, if used correctly, can help you develop credit and increase your capacity to borrow money in the future. Here are seven simple tips to help you get the most out of your first credit card.
- Use a Budget – Using a credit card to make purchases and get rewards is convenient, but it shouldn't be utilized to buy things you can't afford. You can avoid going into debt by having a realistic notion of how much you can spend and pay off at the end of the month. The majority of major credit card companies include expenditure analysis tools that you can access through your online account. You select a time period – a month, a year, or a custom term — and the tool displays how much money you've spent on your card in various categories.
- Leverage Pre Qualification – to see if you're pre-qualified, contact the credit card company. A soft inquiry (a sort of credit check that has no impact on your credit score) can help you figure out if your credit score is good enough to apply for a specific card. Although pre-qualifications do not ensure that you will be approved for a particular credit card, they can assist you in narrowing down your possibilities for credit cards that meet your present needs.
- Shop around – Before deciding what to sign up for, make the most of this information and discover everything there is to know about any card that piques your interest. There are a few no-fee credit cards available, which are usually a smart place to start when looking for your first credit card.
- Pay your bill on time – many credit cards include a grace period, which is the time between the end of a billing cycle and the due date for your bill. You may not be charged interest on your debt during a grace period if you pay it off by the due date. Interest will begin to accrue if you carry a portion of your balance over to the next month. Enrolling in autopay is a simple way to ensure that you never forget to pay your credit card bill.
- Review your credit card charges – To avoid being overcharged, it's critical to report fraudulent credit card charges as soon as possible. If you notice one of these, contact your credit card company right once to have them resolved. Make paying attention to your credit card bill a habit. Seeing your spending patterns may also encourage you to make budgeting a pleasurable practice.
- Does rewards worth it? – Credit card reward programs are appealing since they allow you to earn airline miles, cash, or meals. However, the requirements for earning the benefits of some incentive schemes may wind up costing you more than the rewards you receive. Many rewards programs have a monthly or annual charge associated with them. Check the terms and conditions of any rewards program you're contemplating, and then compare any fees, like as higher interest, against how much you desire the prize.
- Understand credit card risks – If you use a credit card wisely, you can benefit from it. On another note, people who use credit cards for the first time usually abuse them. If you have a lot of debt, it’s hard to get a loan, own a home, and it causes financial hardship for you and your family. When you obtain a credit card, it’s important to use it the right way, not accumulating debt. Having a budget and plan is a great start to avoid credit card debt.
According to FDIC commercial banks' annual reports, credit cards loans increased three-fold from 232.4 million in 2001 to 734.7 million in 2020. However, this has not been a linear trend. During economic hardships, there have been noticeable drops in demand. For instance, in 2008, the loan demand rose to 405.4 million from 375.6 million in 2007.
However, in 2009 credit card loans fell to 375.6 million. You can observe a similar trend from 2018 to 2020, where in 2018, the loans stood at 803.6 million, but in 2019 the demand rose to 846.1 million, only to drop in 2020 to 734.7 million.
Where to Get Your First Credit Card
You can apply for your first card directly as well as talking to your bank and learn more what they can offer.
- Major Credit Card Issuers – If you are attending university, you have a high chance of a reputable lender granting you a student credit card. It’s best not to think that every student credit card you see is a good one. Lenders apply high-interest rates and annual fees on student credit cards which can make them not suitable to apply for.
American Express was named the best credit card company in 2020 by JD Power's 2020 US Credit Card Satisfaction Study. American Express had the highest score of 838 among national issuers in a customer survey conducted during the COVID-19 period. During the pandemic, a higher percentage of customers said American Express responded well. Discover is ranked second (837) while Bank of America is ranked third (812).
With an 816 score, Regions Bank is the most satisfied customer among regional bank issuers. With a combined score of 815, BB&T and PNC are tied for second place.
- Your Bank – If you have a bank account that’s in good standing, feel free to apply for a credit with them too. Since you have a relationship with that bank, you have a higher chance of them approving you for getting a credit card. Especially if you don’t carry negative balances or have overdrafts. Even though you can apply online, going to a branch and meeting with a representative face-to-face gives you more headway to get approved.
A 2019 report by Consumer Financial Protection Bureau revealed issues with purchase information shown in the credit card statement was the highest complaint at 27%. Though not in a specific category, other features, terms, or problems followed at 13%. This is less by half compared to the leading complaint. However, Americans struggled least with paying their bills, which stood at 2%.
Your First Card: Things To Do Before Applying
You usually have to be 18 to apply for your first credit card. If you are under the age of 21, you have to show additional documentation such as proof of income or assets to convince the lender you are able to pay back what you owe.
On the other hand, you will need someone over the age of 21, such as your parents, to make you an authorized user on their account. If you land a part-time job, you may be able to qualify for a student credit card because you are generating income. Keep in mind that you are solely responsible for paying your credit card bill on time.
The credit score range is from 350 to 850, which represents your creditworthiness. You have the option to check your score from the following bureaus: Equifax, Experian, and TransUnion. If this is your first time applying for a credit card, you will have little to no credit history. If you do have a high credit score, you can be eligible for cards with low-interest rates and higher credit limits.
If you don’t have enough credit history, it’s difficult to get a credit card. Even though it’s difficult to get a card with a credit history, there are other ways to get a credit card.
- You can apply for a secured credit card. This type of card requires an initial deposit. Moreover, people with little to no credit history can easily obtain one.
- Get a co-signer to sign with you on your credit card application. A person that co-signs gives a signal to the lender that you are able to pay your credit card off. If you don’t, you will not only damage your credit score but the co-signers too.
Getting a credit card for the first time can be difficult. The dilemma is that you need a credit card to build credit, but you need credit to get a credit card. You see the issue at hand here? If you are dealing with this problem, look into getting a secured credit card.
These types of cards require a cash deposit that’s equal to the limit on the card that’s used for collateral if you fail to make payments. It’s important for you to use this card like a regular credit card and make your payments on time. Your deposit is just simply a safety net. Moreover, you have the option to transition your secured credit card to an unsecured one. The lender will also give you back your deposit.
How to Choose and Use Your First Credit Card
Every credit card company say they have the best benefits; the question is which one is the right one for you?
Not all credit cards are identical to one another. Every card has their benefits, rates, features, and fees that accompany it. If you desire to pay off your bill per month, getting a student rewards card is a great way to go.
Moreover, certain student reward cards offer cash back opportunities on your purchases. Keep in mind though that there may be caps on your rewards card. If you know for certain that you will carry a balance, it’s best to look for a credit card with low interest. Typically, most student credit cards offer a 0% intro APR which lasts 6-8 months.
You have the ability to pay off big purchases without interest accruing on those purchases during the introductory period. Always research the best credit card options that offer low-interest rates, cash back rewards, no annual fee, and a good credit limit.
Also, look into the billing cycle so you will have clarity on your payment cycle to avoid unknown charges. Student credit card lenders offer free tools online to help you budget and keep track of spending.
Here are the terms to watch after to make the decision a lot easier for you:
This is the rate that lenders charge you if you have an outstanding balance. For instance, if you don’t pay the balance off in full, you will owe interest on that balance.
It’s a good thing if you get a card with a low APR (Annual Percentage Rate). Even if you don’t carry a balance, it’s still wise to have a low APR. Also, research credit cards have 0% introductory rates. Also, keep in mind that the intro rate is only temporal; your APR will rise afterward.
It’s best to see if the APR after the intro is permanent or document the day the introductory period expires so you won’t be surprised later on.
Based on a survey by CreditCards.com, the national average credit card rate in 2019 stood at 17.57%. Americans who held bad credit cards were charged the highest interest rate of 24.99%, while the credit card for low interest enjoyed lower rates at 14.61%.
There are credit card companies out there that charge a fee by just having their card. The fee can range from $15 to hundreds of dollars. Most people try to these avid these cards and are ignorant of the fact that these cards carry great reward benefits that offset the annual price.
Just like with the APR, make sure that the number you see is permanent, and not an intro offer just to reel you in.
The credit is the amount your lender loans you each month. Since the length of your credit history is not long when you decide to apply for your first credit card, lenders will only give you a small amount of credit such as $300.
Whatever the limit is, it’s best not to max it out every month. You will keep a good credit score if your card utilization (which is the percentage of how much you use your card) is low.
If you come to the conclusion that your credit limit is too low, after several months, give your lender a call to request a limit increase. Don’t get too excited because it’s not wise to run up a balance you can’t afford to pay back.
Even though we recommend that you pay off your balance each month, the lenders don’t require you to do so; they desire to charge you interest on your purchases instead. On another note, they do require you to pay a minimum amount on your balance each month.
That amount can be a flat fee or a percentage of the balance they require you to pay each month in order to avoid late fees, which impacts your credit score. Make sure that you pay at least the minimum each month. Here’s a great tip: set up auto pay to ensure that you pay the minimum each month.
Other than the annual fee, card providers charge other fees as well. This is why is wise to read the fine print. One of the main fees you need to know is the late payment fee. For instance, if you miss a payment, what is the lender going to charge you for not paying your monthly payment?
Will Getting a Credit Card Lower my Credit Score?
When you apply for a credit card, the card issuer will perform a hard pull of your credit history, which can cause a slight dip in your credit score. However, your new credit card account could actually be beneficial for your credit score. Firstly, as long as you don’t max out your card, it will increase your credit utilization ratio.
Secondly, as you start making payments on your new credit card account, they will be reported to the credit bureaus, which will help build your credit.
Getting a credit card could potentially impact getting a mortgage if the card balance increases your debt to income ratio or you are late with payments, which could damage your credit score.
Your potential mortgage lender will look at your overall debt, so if you’re carrying a large balance on your credit card, it will suggest there may be affordability issues.
However, if you use the card responsibly and keep an eye on your credit utilization ratio, having a credit card could actually help to boost your credit score, and help you to get a mortgage.
Depending on how you use it, a credit card could help you to save money. If you pay your balance in full each month or have a 0% introductory rate, you could pay off outstanding debt without incurring interest. Additionally, if you are using your credit card for everyday purchases and getting cash back as a reward, you could accumulate your rewards as savings.
Yes, but the amount of time you need to wait before applying will depend on the type of bankruptcy. If you filed Chapter 13, it can take up to five years to restructure your debt, so you will need to wait until this period is over to apply for a new credit card. Chapter 7 takes up to six months for your debts to be discharged, after which point you can apply for a new credit card.
Just be aware that the bankruptcy will have had an impact on your credit score, so you will need to concentrate your application efforts on cards that are designed for those with less than perfect credit.
Paying down existing debt is the quickest approach to improve your credit score. Not only will this appear on your credit report, but it will also lower your credit utilization percentage. This is a percentage of your debt expressed as a percentage of your credit limit. So, if you have $2,000 in credit card debt and $6,000 in total credit limits, your credit use ratio is 33%.
To maintain a decent credit score, you should attempt to keep your credit utilization percentage around 30%.