11 Things to Keep in Mind Before Getting Your First Credit Card
Applying and getting your first credit card is a huge step – and a big adjustment. You might already be aware of how credit cards work and how to handle them responsibly, however, you know what they say – the devil is in the details.
Go beyond the basics and truly understand the ins and outs before applying for your first credit card with these 11 must-know tips for first-time card applicants.
1.Manage your expectations.
You might think that with good credit and no loans, you’d land yourself with an approved high rewards credit card. Well, that’s not the case. Credit cards with rich rewards, perks, big sign-up bonuses, or long 0% interest periods are not usually given to first-time applicants.
Those types of cards are available only to applicants with good or excellent credit scores and longer credit histories. You’ll most likely start with a smaller credit card, the type of product geared towards people with little to no credit history.
You don’t have to look at this as a bad thing. These types of cards offer decent rewards and perks. Here are some options:
●Student credit card
●Secured credit card
●Credit card marketed to those with fair credit
●Credit cards you pre-qualify for, either through your bank or online like NerdWallet’s pre-qualification page
2.Security deposits make it easier to get a credit card.
With little to no credit history, it’s tough to get approved. However, you can try applying for a secured credit card.
Based on its name, secured credit cards are secured by requiring a cash deposit. For people with damaged credit histories, this can help them avoid falling deeper into bankruptcy because typically, your security deposit is equal to your credit limit. It makes sure that you have enough money to pay off your card at the end of the month.
Minimum deposit requirements range from $200 to $500, depending on the card. Most secured credit cards allow you to deposit more to have a higher credit limit.
Falling behind on payments can mean losing this deposit. However, if you keep paying on time and spend below your card’s limit, you can build good credit faster in a matter of months. You may even upgrade to an unsecured credit card if all goes well.
3.Your first credit card can make or break your credit.
While many people believe that they need a credit card to build their credit history, many people tend to gloss over the fact that it can very well destroy it as well.
Every month, your issuer sends your credit card activity to credit bureaus. These bureaus compile these reports, which in turn form the basis of your credit scores. These reports contain whether or not you pay on time and how much of your available credit you’ve used.
To avoid damaging your credit score, make sure to always pay it off on time, and stay well below your credit limit. Avoid taking out loans that you can’t pay for.
4.Check out the rates and fees before applying.
Read the fine print in advertisements. Check out the Schumer box enclosed in credit card application forms. This box contains the different fees you might need to pay upon availing of your card. This includes:
●Annual percentage rates
●Foreign transaction fees, and
Read this carefully and ask all the questions you have to avoid biting off more than you can chew.
5.Credit card fees are avoidable.
Yes, they are indeed avoidable and you can do this by picking out a card that doesn’t charge annual fees and paying on time to avoid late fees.
Other fees like foreign transaction fees and transfer fees are moot if you don’t plan on using your card for these transactions.
6.Interest is also avoidable.
Regardless of how high your credit card APR is, you don’t have to pay any interest as long as you pay your credit card bill full every month. (See, this is the importance of paying in full and on time.) This is because of your card’s grace period. This period simply allows you to avoid interest payments as long as you pay the next month’s bill in full.
However, if you don’t pay it in full, you will then have to pay interest on the carried balance and interest on new purchases will start to accrue.
7.You can pay more than the minimum.
As a matter of fact, it’s encouraged to pay more than the minimum. A minimum payment is the amount of payment you have to pay in order to keep your account in good standing.
However, in reality, paying less now generally means paying much more later. The minimum only covers the past month’s interest and fees, and only a small amount of the underlying balance. So technically, you’re only paying off the interest and not really the amount you owe. It’s best to pay more in order to tick off that balance.
8.Tardiness does not pay.
Late fees are one of the biggest fees you’ll struggle with if you’re not careful. Depending on how late your payment is, you could face:
●Penalty APR’s and,
●Damage to your credit
To avoid this, look into setting up automatic payments from your bank account or setting an alarm whenever your due date draws near.
9.Don’t get too close to your limit.
Your credit utilization ratio is a major factor in credit scores. If your utilization ratio is too high, like you have a balance of $2500 on a card with a $3000 limit, your credit score can take significant damage.
Ideally, your utilization ratio would be under 30%. That way the issuer can report that you’re responsibly handling your credit line, which in turn can lead to credit bureaus raising your credit limit.
10.Dealing with credit card fraud isn’t as scary as it sounds.
Credit card fraud is an awful thing, but dealing with it isn’t as hopeless as it sounds. If the unfortunate happens and crooks gain access to your card information, know these three points:
●It’s the credit card company’s money at stake, not yours.
●You don’t have to pay anything.
●Getting a replacement card is relatively easy.
11.The reason behind a rejected application is not unknown.
If in the event that you’re rejected, you can ask your issuer why. By law, they are required to send you an explanation for their decision and you can learn from it. This is called an adverse action notice.