Getting your first credit card is no doubt a huge milestone worth celebrating. But it can also be a daunting task - from choosing between the several available credit cards on the market to handling the card responsibly. Nevertheless, with all the horror stories about misusing credit cards, it is important you get all the information you need to guard against rookie mistakes.
In this post, we have highlighted 7 important things you need to know before even applying for your first credit card. You will be surprised to know that going for the best credit card is actually not a good step for a beginner like you to take. So, read on to discover some more tips to help you become better at using and managing your credit card - even as a first-timer.
Things to Know Before Applying for Your First Credit Card
#1: Don't go for the best credit cards: they aren't for beginners
This is one truth many credit card beginners don't know. As a beginner, your chances of qualifying for the most valuable credit cards that come with big bonuses and perks are very slim. Those kinds of cards are reserved for applicants with good or excellent credit scores and long credit history.
So, as a beginner, it would be best if you could focus on credit cards suited more for people with limited or no credit history. You would also be surprised that some of those cards are actually amazing in their offers. Some options you can consider include a student credit card or secured credit card.
To further know about which card will be right for you based on your lifestyle and some other factors, you can use MyFin.us to compare a range of credit cards, and then help you decide which is best for you
#2: Your first credit card can either build or ruin your credit score
You definitely must have heard that before. But for the sake of emphasy, let's mention it again. Your first credit card is designed to help boost your credit. But if you are not careful enough with it, it can ruin your credit score. Every month, your card issuer sends a comprehensive report of how you are doing with the credit card to the credit bureaus which compiles the reports to determine your credit score.
Things like late payment, maxing out the card, using all of your available credit at all times can all negatively affect your credit score.
#3: Getting a credit card can be easier with a security deposit
Sometimes, it can be very difficult to get approved for your first credit card because you are just starting out. In that case, you can consider a secured credit card. This kind of card is designed for beginners like you, as well as people with no or damaged credit. To get the card, you will first need to make a cash deposit. Now, the more you deposit, the higher your credit limit.
However, consistently making late payments could make you lose the deposit, which is usually between $200 and $500, depending on the card. But if you properly maintain the secured card, your card issuer might upgrade your account to a regular unsecured card. You can as well apply for an unsecured card, and your deposit will be refunded.
#4: Pay your bill on time and in full
The rule of thumb to using and maintaining a credit card is to pay off the balance in full every month when the bill arrives. That way, you will not be accumulating interest charges on your bill. If that happens, it can leave a dent in your credit score. Only buy things you can afford to make it easier for you to pay the full bill when it comes in. However, if a time ever comes when you can't pay off the bill in full, you should put the credit card down for a couple of months and live off your checking account. Do that until you have the card paid in full.
#5: Don't be afraid to use your credit card
Many credit card beginners actually thought keeping a $0 balance on their credit card is the best way to handle the issue of credit card late payment and interests. Well, doing that will do you no good. To increase your credit score with the card, it is important that you regularly make purchases with the card. Card issuers want to see how you use and maintain the card issued to you.
Therefore, while you want to make sure you don't exceed 30% credit utilization, you also want to be sure you regularly use the card to the fullest benefit, too.
#6: A credit card is not an emergency fund
Knowing this truth will give you peace in many situations. You should know that if you use your credit card in an emergency, paying off the card may be very difficult when the bill finally arrives. You will be carrying a balance, whose interest will continue to weigh on you.
Also, credit cards fund may fail you in some instances. A good example of such is identity theft. In such a situation, you will need to have a cash emergency fund sitting somewhere in one savings account that will come in handy in times of emergency.
#7: Shop around before you apply
Before you apply for any credit card, take your time to read about the interest rates and fees the issuer offers. This information is usually published on their websites. So read in between the lines before going for any card issuer. Remember that every time you apply for a credit card, the lender checks your credit, and that will be noted on your credit report as a hard inquiry. The more hard inquiries you have, the more points your credit score drops at each inquiry.
So do your homework well before applying for any credit card so you can reserve your hard inquiries for only cards you actually want. There are some credit cards you should keep your eyes on. These include student credit cards and no annual fee credit cards.