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.
Before Applying for Your First Credit Card
There are a couple of steps you can take before applying for your first credit cards:
1. Identify Your Credit Score
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.
2. Build Your Credit History
Getting a credit card is important to build your credit history. On the other hand, 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.
3. Understand The 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.
4. Set Your Budget
A major benefit of credit cards is that you can purchase items on credit instead of using money out of your own pocket. Moreover, it’s important to have a budget.
- It’s important for you to know how much you can spend per month. It’s necessary to pay 2% of your balance each billing cycle.
- Make sure to pay off your bill every month to avoid interest accruing.
Furthermore, understand the advantages of having a credit card. The advantage of having a card is that you can start building a credit history, get low insurance premiums, loan rates, and get an apartment.
Your First Credit Card
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.
Where to Get Your First Credit Card
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.
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 Secured Credit Card
If your low credit history is preventing you from getting a regular credit card, you can always apply for a secured credit card. By having this type of credit card, you make a deposit against the limit of the account. The lender holds your deposit just in case you don’t make payments consistently.
Moreover, you may have the opportunity to convert an unsecured credit card in the future. Getting a secured credit will not hurt your chances of getting a regular credit card. It all looks the same on your credit report.
What to Look For in Credit Card Offer
Every credit card company say they have the best benefits; the question is which one is the right one for you?
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.
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.
Secured vs. Unsecured
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.
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?
Getting Approved For a Credit Card
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.