What to Consider Before Getting Your First Credit Card
Getting your first credit card is a big milestone for many students and young adults. These symbols of independence are indications that you are financially prepared to accept financial responsibility and begin your credit journey.
Before you jump straight in, there are several facts about owning a credit card that you should be familiar with before signing up. Check out our guide for what to consider before getting your first credit card.
Credit Card Basics
Although debit and credit cards are both used to make purchases, there is a difference in where the money comes from. The most important aspect about credit cards is that technically, you’re not spending your own money. While debit cards take funds out of your checking account, credit cards charge purchases through a line of credit. You are then responsible for repaying the amount you spend by an assigned due date.
A failure to pay back the money you have borrowed can result in credit card debt. Worst case scenario, a misunderstanding of how a credit card works can cause you to be working month after month to get out of debt fast. However, a basic understanding of how a credit card works is one of the best ways to stay in control of your credit.
Start by familiarizing yourself with some of the more common financial terms used when discussing credit cards:
- Credit Limit: Also called a credit line, a credit limit is the maximum dollar amount of credit cardholders are allowed to use.
- Statement: Your credit card statement is a summary of recent transactions that you have made within a billing cycle.
- Grace Period: A grace period is a set time after the due date in which a payment can be made without being penalized.
- Annual fee: An annual fee is an amount charged every year for borrowing money from a credit card.
- Minimum Payment: Your minimum payment is the minimum amount you must pay towards your balance each month.
- Authorized User: An authorized user is an individual who is entitled to make purchases with the card.
- Annual Percentage Rate: An annual percentage rate (APR) is a combination of all of the costs for using a credit card, including the annual fee, interest rate, and late fees.
- Dispute: A dispute occurs when you work with your card issuer to remove an unauthorized charge that has appeared on your statement.
Understand the Types of Credit Cards
In addition to being familiar with credit card terms, you should also be aware of the different types of credit cards available. There are cards for almost every need, including for those who have no credit and for those looking to cash in on perks and rewards.
Some of the more popular card types include:
- Secured cards
- Unsecured cards
- Balance transfer cards
- Charge cards
- Prepaid cards
- Low-Interest cards
- Rewards cards
Student cards are offered by several major banks and are easy to set up. If you are young and wondering how to open your first credit card without a previous credit history, there are plenty of options for you.
When to Get a Credit Card for the First Time
In order to apply for your first credit card, you must be at least 18 years of age. You must also meet the criteria to be approved, such as providing proof of a steady income.
However, it is possible to become an authorized user if you are below the age of 18. Adding an authorized user means that the primary account holder – perhaps a parent – is legally responsible for making monthly payments. However, the authorized user can make purchases with the card and begin to build their own credit history.
Before you open your first credit card, think about why you need one and what use will come of it. While credit cards are helpful tools, they can also be financial dangerous if you don’t know how to create a budget and manage your money.
Why is it Good to Have a Credit Card?
Having a credit card can be extremely useful for a variety of different reasons. They can be valuable tools for cardholders when used correctly.
Credit cards are the best way to begin to build credit and although it’s important to have an emergency savings fund, you can use a credit card for emergencies if you find yourself in a crunch.
Other benefits of credit cards include:
- Improved credit score
- Fraud security
- Earning rewards
There are horror stories about what happens when owning a credit card backfires. Paying late or missing a payment altogether can result in huge penalty fees and large amounts of debt. However, all it takes is a little self-control to avoid having to worry about paying off credit card debt. If you need help managing your money, take advantage of a free credit coaching session or use our free personal finance tools!
How to Open a Credit Card
Opening your first credit card is usually a simple process. Whether you’re applying for a credit card online, over the phone, or in person, you must be 18 or older. Applicants are required to include personal information, such as:
- Social security number
- Date of birth
- Housing situation
- Gross income
Most credit card companies decide on your approval within 7-10 business days. You can typically expect your credit card to come in the mail within 7-14 days after approval.
How to Choose Your First Credit Card
There are hundreds of options when it comes to choosing your first credit card. The key is to scroll through promotional ads, read contracts, shop around and ask for credit help if you need it.
Do you want to build credit, make large purchases or earn rewards? It’s important to do research on credit cards that will fit your specific needs. Every card comes with different policies, rates, benefits, amounts, and fees. Most companies offer advantages like:
- Sign-up bonuses
- Travel miles
- Purchase protection
- Fuel points
Once you’ve decided on what you want from your card and what cards you are qualified for, reach out to the credit company. Also, be sure to ask about any ongoing promotions that may give you a better deal.
Stay Out of Debt and in Control of Your Credit
Ultimately, making payments is a cardholder’s biggest responsibility. With proper use of a credit card, it’s easy to improve your credit score, credit history and stay out of debt. That said, if you find yourself overwhelmed with credit card debt, talk with one of our free credit counselors today.