Getting your first credit card is a major financial step. Used properly, credit cards offer a flexible way to cover unexpected expenses and build up a good financial reputation. However, used irresponsibly, credit cards can potentially lead to long-term debt and difficult financial situations, so it’s important to understand but how to use a credit card and how not to use one. Luckily, most of this boils down to ordinary common sense!
Getting Your First Credit Card
Get a credit card from your bank or credit union. If you’ve never had a credit card before, it can be confusing to figure out where to start. A good first step is to visit the bank or credit union where you have a checking or savings account and ask the staff about the possibility of getting a credit card. Most local financial institutions will be willing to offer credit to responsible, qualified customers.
Note: however, that your eligibility for a credit card can be affected by the length (and quality) of your financial history. If, for instance, you’re a young adult who’s only had a savings account for a few months, you may not meet your bank’s standards for a credit card. In this case, you may need to maintain your savings account for some time or settle for a special type of credit card called a
secured credit card.
Get a credit card from a credit card company.
A bank isn’t the only place you can get a credit card — many credit cards are offered by companies that operate just like any other business. You are probably already familiar with some of these companies, like Mastercard, Discovery, etc. These sorts of companies offer a wide array of credit cards to many different kinds of customers, though, like banks, they will only issue them to customers that they believe are financially responsible enough to pay for them.
If you’re in the market for one of these sorts of credit cards, consider consulting a Consumer Reports-style resource for more information — there is lots of reputable information online about which cards are good deals and which are not. Some sites, (like, for instance, Nerdwallet.com) even offer their own credit card ratings.
Get a credit card from a local business.
Businesses in a wide variety of industries (including retail, travel, gasoline, and more) issue their own credit cards. Often, they will offer the chance to sign up for these credit cards when you make a purchase. Note, however, that store credit cards can often have high interest rates (the amount of money you need to pay back over time) and low credit limits (the total amount of money you are allowed to spend at once) compared to other types of credit cards.
One reason that store credit cards are sometimes attractive to customers is that they come with rewards. These may include a percentage off of a purchase being made, a 0% interest rate for a limited time, and ongoing bonuses based on the use of the card. For example, it’s common for credit cards issued by airlines to accumulate “miles” with use. Once enough miles have been built up, they can be used for big discounts on plane tickets.
Be able to prove your financial responsibility.
When you apply for a credit card, the bank or business issuing you the card wants to know that you’ll be able to pay back any money you spend. To do this, they will check your credit history, which is made available to them by credit report agencies. This means that your financial history usually determines whether or not you’ll be able to get a credit card. Some aspects of your financial history that may be analyzed include:
Loans (including mortgages) — have you paid these off on time, or have you been late or defaulted?
Rent — Have you been consistent about paying your rent on time? Note that only some landlords send your history to credit report companies.
Past credit cards — have you used previous cards responsibly and paid off your debt on time?
Major financial events — have you recently declared bankruptcy or been foreclosed on?
Be willing to settle for a secured credit card if you have a short history. If you’re responsible with your money but you don’t have much of a credit history, it may be difficult for you to prove that you’re a good candidate for a normal credit card. However, it should usually be possible for you to get a special type of credit card known as a
secured credit card. These work like ordinary credit cards, except that you must put down a deposit to get one. This makes the institution giving you the card feel much more comfortable about extending credit to you — if you can’t pay back what you owe, the bank or business can always take the money out of your deposit. Secured cards offer a way for people with very little credit history (or a bad credit history) to start building up a good history. After you’ve shown that you can use your secured card responsibly, you’ll probably qualify for a normal credit card (or an
unsecured card), which doesn’t require a deposit.
Start making purchases (responsibly.) Congratulations — you now have a credit card. You can now start using it to make purchases almost anywhere — simply present it to the cashier at the time of purchase or swipe it like an ordinary debit card. Below are a few very basic tips for using your new card (for more detailed information on using your card responsibly, see the section below.)
You are only allowed to spend up to your card’s credit limit (for a secured card, this is usually the amount of money in your deposit). Purchases that put you past this limit may be declined.
Spending with a credit card racks up a balance. After about a month, you’ll start to get bills for this balance — you must pay at least the minimum payment designated on the bill (usually about 2% of your balance) or face penalties.
It is in your financial interest to pay your balance off as quickly as possible. Balance that you don’t pay one month “rolls over” to the next month with interest — a sort of “fee” for not paying back your balance as quickly as possible. Your interest rate is a set percentage of your total balance which is agreed upon when you sign up for your card. Note that some cards offer 0% interest payments for a period of time after signing up.
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