The Ultimate Guide to Your First Credit Card
Are you applying for your first credit card? Don’t worry – we’ve got you covered!
You finally realize you need a credit card – this is a big milestone in your financial life. Your first credit card plays a huge part in building a strong credit history, which makes it even more important to pick the right one.
It’s easy for you to feel lost when the options seem endless. After all, you will have to compare APR, annual fees, minimum payment, transaction fees – things that you might not be familiar with. Fret not, we’ll explain it all here.
So many options… Where do I begin?
In order to select the right first credit card, you need to know the main purpose behind your need for a credit card. Are you looking to build your credit score? Are you looking for a little financial help for a major one-off purchase? Are you looking to earn rewards from your purchases? Once you know your purpose, you can begin your hunt for the perfect credit card.
How do Credit Cards differ?
Credit cards can generally be broken down into two types: rewards and non-rewards cards.
If you know that you can pay off your full balance at the end of each month, you should try to get a credit card that offers rewards. These cards reward you a percentage of the money you spend in the form cash back or redeemable points.
However, if you’re looking to extend some credit, you should consider applying for non-rewards cards which usually offer lower APR as well as more relaxed credit extension provisions.
What kind of rewards card should I get?
Rewards usually come in the form of hotel, airline, travel, or cash back. As a first-timer, unless you earn a lot and know that you will spend more than $24,000 annually, go with a good cash back credit card. A percentage of your spending will typically be rewarded to you as statement credit to set off your bill payment, like a rebate on your purchases.
While travel, hotel or airline rewards are usually valued more, they also come with higher APR, annual fee and sometimes minimum spending requirements before you get these rewards. Banks might also want you to have an excellent credit history before you could get your hands on those cards. So for a card that you will hold for life, get a good cash back credit card with no annual fee.
Why is the first credit card so important?
Remember how the length of credit history accounts for 15% of your total FICO score? Unlike your first car, your first credit card is something you would hope to hold onto for life. Cancelling your oldest credit card hurts your FICO score more so than it would on your newer cards. This makes it especially important to make the right decision when choosing your first credit card – you don’t want to be holding onto a card you don’t want – which is another reason you should avoid annual fees for your first credit card.
What is the minimum age required to apply for a credit card?
18 – but after the Credit CARD act of 2009, if you’re between 18 and 21, you will need to either show you have your own income or have someone co-sign your application. The bank just wants to know that you’re able to pay down credit card balances.
Is it possible to have a credit score without ever having had a credit card?
Yes. Any loans or borrowed money may contribute to a credit history. So if you have ever had student loans, or taken out an auto loan, it’s likely you already have a credit score. Also, FICO recently announced the implementation of a new credit score calculation model that will take into account your address change frequency and payment history for wireless and utility bills. You may even request your rent payments be reports to the credit bureaus.
Can I get a credit card with no credit history?
Yes. There are plenty of student credit cards designed with someone with no credit score in mind, such as the Discover it® for Students or Journey® Student Rewards from Capital One®.
However, don’t be quick to assume that you have no credit score. You could request a free one from annual credit report where you’re entitled to one free credit report per year. Try to build your credit meanwhile.
Without credit history, you will have a better chance getting a credit card with a bank you are already in business with, so start with the bank at which you hold your checking and savings accounts. Your bankers are in power to pull some strings with the credit department, so speak with them and they will most likely help you with your credit card approval. However, don’t ever agree to substandard terms in the process.
APR (Annual Percentage Rate)
It’s the periodic interest rate, expressed as an annual amount, used to compute the interest charge on an outstanding balance.
A yearly fee charged by a credit card company each year for the use of a credit card. This is a separate fee from interest rate on purchases.
The amount of unused credit available. Available credit is computed by subtracting the outstanding balance from your total credit line.
The number of days in the billing period. It includes the day after the previous close date through the current closing date of the account.
Also known as Credit Limit, this is the maximum amount you can carry as the balance on your credit card. If you exceed this amount, an Over-the-Credit-Limit-Fee may be imposed.
Also known as a credit rating. Many lenders use this numeric calculation of your credit report to obtain a fast, objective measure of your credit risk, and consider your score when deciding whether or not to approve a loan.
Credit card companies must give you at least 21 days, and sometimes more, to pay off your statement balance (the amount shown on your bill). As long as you pay this balance off by the due date, you will not be charged any interest or late fees.
Credit cards often offer lower introductory APRs as special promotional offers on a limited time basis. After the introductory period, the rate usually returns to the standard rate on the account.
An issuer (or issuing member) is the financial institution which issues the credit cards – for example Chase or Capital One.
Late Payment Fee
The charge that may be imposed if the Minimum Monthly Payment is not received by the Payment Due Date.
Minimum Monthly Payment
The minimum dollar amount that must be paid each month to prevent a credit card account from being delinquent. The amount is based on the percentage of your Outstanding Balance or a minimum fixed amount, depending on the terms of the account.
The amount you owe on your credit card. This is the balance used to calculate payments and on which interest is charged if you do not pay off your statement balance by the due date.
The fee that may be imposed if your outstanding balance exceeds your credit limit.
Credit card charges you make at merchants. Purchases usually have a lower APR than other account transactions such as cash advances.
Awesome! Now show me the best credit cards for first timers!