I’m almost 22 years old, and I’ve never had a credit card. I feel like I’m behind the eight ball on this one. I grew up with a mother that disdained credit cards and a father that only used his when we were on vacation.
They were financially stable. So, why would I ever need a credit card if they survived just fine without them?
While credit cards can have a huge negative impact on your credit score if used improperly, they can also help you build that score for future big purchases—and offer some pretty cool benefits.
Because of this, I recently shopped for my first credit card. This was daunting, but I learned five things along the way that could help any other first-timers out there.
1. Will You Get Approved?
Many different factors determine whether a credit company will approve your application. One of the biggest is your credit score. Knowing your score will help you figure out cards you may be eligible for.
Each card will have its own definition of a “good” (or “good enough”) score, but generally, 650 or above is considered favorable. If your score isn’t that high, don’t panic. Knowing this will prevent you from applying for cards you’ll surely get denied from, and there are plenty of sites online with advice on ideal cards for people with lower credit.
2. The Interest Rate
Look for cards that charge at the date of billing rather than the date of purchase. Why? If interest starts to accumulate when you make a purchase, you’ll always pay more than your purchase is worth. If the interest isn’t added until the date of billing, you can pay your card off before the bill date and avoid interest all together.
Take a hard look at yourself and your spending habits. I’m obsessive about making payments before they’re due and know I’ll only use this card to make small purchases and build credit. Because of this, the interest rate doesn’t matter as much to me. However, if you plan to keep a balance, definitely look for low interest rates.
3. Extra Fees
I thought I’d found the perfect card … then I learned that I’d have to pay up every 2 weeks! This could have put a huge damper on my “no interest” plan, had my dad not caught this detail before I applied.
Like with any financial commitment, this served as a good reminder to know what you’re getting into—and definitely read the fine print. The big thing to be on the lookout for? Fees. Annual fees, application fees, or any other fees. Some cards require you to pay hundreds of dollars a year in additional charges.
4. Upgrade Opportunities
Closing an account may be bad for your credit, but you don’t want to be stuck with your flimsy $200 limit card with minimal benefits forever. Instead, look into cards that have plans for upgrades.
I found a card that guarantees a limit upgrade after 6 months of on-time payments and will upgrade me to the next card level after a year. The plan for upgrades after that looks just as promising, with no increases in fees. Considering this when picking a card helps ensure you won’t outgrow it.
Cash back on everything? Free flight miles? Prizes? Rewards aren’t the best reason to choose a credit card, but they are the most exciting! It’s all about what important to you. Travel? Everyday savings? Pick a card that offers benefits you’ll use.
The card I chose works on a points/dollar system. You earn a certain amount of points per dollar, depending on what you purchase, and get bonus points based on other incentives. These points can go to things like vacation or a night out. Hawaii, here I come!
What else should a credit card newbie for on the lookout for? Share your tips in the comments.