Positive credit habits are incredibly important for your credit score and overall financial life. However, as you get into your late teens and early twenties, you might feel like it’s time to get your first credit card. Unfortunately, companies may be trying to sway you from every angle, so it’s vital that you spend your time doing research and deciding what credit card to get based on your individual habits and needs. If you need advice on getting your first credit card, keep reading below to learn about some of the most important things to consider before signing a contract.
When Should You Get a Credit Card?
There’s no perfect time to start building credit. However, things begin to get more important financially once you get into your early twenties or finish school (college or otherwise). At that point, you will want to start looking at buying cars, signing apartment leases, or even buying properties once you have a steady salary and a stable job. That being said, it’s good to start building your credit with a credit card before you get to some of these major financial milestones. That way, you’ll be ready once they present themselves. Therefore, the late teens and early twenties are ideal times to get your first credit card.
Why Is It Important To Get a Credit Card?
Getting a credit card and starting to build up your credit is essential for many reasons. For one, credit cards can help provide you with emergency funds. If something comes up that you need to pay for, but you don’t have enough cash on hand, credit cards can help you offset the cost upfront. Credit cards can also help you finance big purchases you don’t have the money for immediately.
But the key to using credit is being responsible with it. Paying off your credit card purchases in a timely manner contributes to your money management skills and improves your credit score for every on-time payment you make.
Tips for Choosing Your First Credit Card
Now that we’ve discussed when you should get your first credit card and why credit cards are beneficial, we can talk about tips for actually choosing your first credit card. There are dozens of different cards on the market, and many companies will reach out to you with enticing offers. However, it’s important not to immediately say “yes” to just any card. And always read the fine print before agreeing to any offers, no matter how great they might sound.
Do All The Research
Before you decide what credit card to get, you should do all the research on the different types of cards that are available. Between travel credit cards, store credit cards, or credit cards with special rewards, make sure you check out every institution and the respective cards they offer. When looking at cards, consider annual fees, rewards percentages, maximum rewards payouts, interest rates, and other benefits. By doing all your research, you can get the best possible deal and benefits from your credit card.
Make Sure You Have Verifiable Income
In order to issue you a credit card, lenders need to know that you can be trusted with their money. This is because, essentially, credit cards are a bank lending you money that they trust you will repay when the bill comes due. Therefore, you will need to prove that you have steady, verifiable income for lenders to trust you with their money. If you have no money and no credit score, you will likely not be approved for unsecured credit cards. So, your income must be steady.
Read All the Terms and Conditions
When you look closer at the cards you’re interested in, be sure to read all the terms and conditions for each card before applying. Sometimes, interest rates are printed small in the terms and conditions. This is especially true if rates are super high. Institutions don’t want you to notice them!
Additionally, the terms and conditions are where you will read all of the benefits and rewards percentages. Whether you uncover negative or positive information, reading the terms and conditions will help you uncover a more holistic picture of what your credit card will provide.
Check Out the Perks and Benefits
As we just mentioned, reading the terms and conditions of your card is very important. Additionally, reading about the perks and benefits available to you is one of the most important parts of choosing a credit card.
What areas do you spend the most money in? Is it entertainment, food, transportation, or something else? Are those categories the ones that provide you the most rewards with the credit card you’re looking at? These questions are important things to consider. For example, if you never travel, a travel rewards credit card might not benefit you too much. But if dining out is one of your favorite hobbies, a card with cashback at restaurants might be worth looking into.
Look Into Secured Credit Cards
Secured credit cards are an excellent option for your first credit card, particularly if you have no other credit (student loans, car leases, etc.). Secured credit cards are credit cards where you put down a security deposit, and then your deposit acts as your credit limit. For example, if you put down a $500 deposit, you have a $500 credit limit. This prevents you from spending more money than you can afford, and it also rewards you by improving your credit score as long as you continue to make payments on time. If you lack self-discipline or the ability to keep your credit cards in check, a secured credit card is a great starting point.
See Where Your Credit Stands First
It doesn’t affect your credit score if you apply for a credit card and get denied. However, multiple hard inquiries on your credit will. That said, be sure to see where your credit stands before applying for credit cards. If your score is low or you have practically no credit, you will likely be denied by credit cards requiring you to have a higher score or more substantial credit. When searching for your first credit card, avoid applying for cards that require users to have excellent credit. That way, you will avoid getting stuck in a cycle of applying for cards and having hard inquiries on your credit report.
Pay Back Your Loans
If you have student loans, car loans, or personal loans, a positive payment history on those loans will positively impact your credit and help you appear more trustworthy to credit lenders. While having outstanding loans might seem negative, you can use those to your advantage when applying for credit cards. If you have made steady, reliable payments on your loans, you are considered “low risk” for lenders and can therefore be trusted with an unsecured credit card.
Become an Authorized User
If you find yourself stuck in terms of getting approved for a credit card or you don’t want to make any more hard inquiries on your credit, becoming an authorized user on another card is a great solution. For example, if your parent, friend, or family member has a credit card with a high limit, they can add you as an authorized user to their card. In this scenario, your credit score can actually benefit from their positive payment history (even if you don’t spend any money)! But beware, always make sure you pay the bill on time. Late payments as an authorized user will not only lower your credit score; they can hurt your relationship too.
Getting a credit card as you’re starting out in life is a great way to build a solid financial foundation. However, be sure you find a card with terms that work for you. If you pay your bills on time and never spend more than you can reasonably pay back, you’ll be well on your way to establishing a healthy credit score. Your future self will thank you!