There are many factors to consider when applying for your first credit card, and deciding on a credit card can be daunting. There are a lot of credit card offers to consider, and even more to learn about how to use credit and credit cards responsibly. But it doesn’t have to be difficult. We’re here to help you make sense of the options and determine the best way to establish your credit and apply for your first credit card.
Getting Your First Credit Card: Things to Consider
Establishing Credit for the First Time
Before you’re ready to jump into applying for a traditional credit card, you may need to start smaller by establishing your credit for the first time. There are a number of options to help you establish and build a good credit score. Here are a few that can help you get started:
- Consider a secured credit card: A secured credit card is an excellent way to start to establish credit when you are just starting out. Secured card function much like traditional credit cards with the exception of they requiring a security deposit. These types of cards are easy to qualify for if you have the funds for a deposit, and they will help you establish good payment habits utilizing a low credit limit while starting out. Consider a secured card like a traditional card, but with training wheels!
- Pay On Time Every Time: The best habit for building healthy credit is to pay on time every single month. By establishing this habit early on, you’ll have a tremendous advantage over many long-time credit users.
- Avoid Carrying a Balance: When you carry a balance on your credit card from month-to-month, it can be easy to establish patterns of using debt that can take years to undo. When establishing credit, your future creditors will want to see that you have utilized past credit well by keeping balances low and establishing an excellent payment history.
- Learn to Read and Understand Your Credit Report: Understanding your credit report is vital for a healthy credit score. Make it a top priority to learn how to find your credit report, read it and understand the information it contains.
How Will My Credit Score Impact Choosing a Credit Card?
Your credit score will have a tremendous amount of impact on the type of credit card you can obtain, and a low credit score can keep you from qualifying for a card at all.
Individuals with low or beginning credit may be seen as a “credit risk” to some card issues because they do not have a proven track record of responsible card use for the creditor to look at.
Not all is lost, however, if you don’t have established credit, or if you’ve had credit struggles in the past. There are credit card options available at all credit levels. It’s possible to find a card that will work for your needs.
Understanding Credit Card Fees and Interest Rates
Credit cards are often thought of as a product when in truth they are more like a service. For some credit cards, especially for those who don’t have established credit, in order to pay for access to the service, you need to pay an annual fee. There are some cards that don’t charge an annual fee, while others charge as much as $95-$100.
For every credit card, regardless of annual fees, there are interest rates associated with your account that apply to credit card purchases and balance transfers. Interest rates can vary, and it is common for those who are just starting out with using credit to pay higher rates than those with established credit.
The interest rate your card carries determines how much it will cost to borrow money from the credit card issuer if you carry a balance. Most credit card companies will list their interest rates as an Annual Percentage Rate (APR).
In 2020, the average credit card offer carries a 19.02% APR, according to the Credit Card Landscape Report. Credit card offers for those establishing new credit can climb higher.
Can My Credit Card Interest Rates Change?
The short answer is, yes. Your credit card interest rates can change based on a number of scenarios. There are four typical causes that might trigger a change in your interest rate. Here are the typical instances when an APR might change:
- An introductory rate has expired. It’s not uncommon to be issued a low introductory APR when you open a new card, but it’s important to remember that these rates are temporary, and typically last anywhere from 6-18 months before the regular APR kicks in. Your interest rate after the introductory rate expires will be listed in the fine print of your credit card agreement
- Your payment habits trigger a penalty: Across the board, a penalty APR is higher than your normal rate, and your card issuer can apply such a rate once a payment on your account has been missed.
- The credit card issuer changes the APR: Though they are required by law to give you notice of 45 days, your credit card issuer is permitted to change the APR for future purchases at their discretion. What they can’t do is change the interest rate for past purchases or balances you carry.
- Your credit card has a variable rate: A variable interest rate can fluctuate as the market fluctuates. Your credit card offer details will list whether you have a variable or fixed-rate (meaning it will not change) on your account. It’s common for credit cards to have variable rates.
Using Credit Card Comparison Tools
Now that you have some insights into the process of applying for your first credit card, it’s best to take some time to compare the credit cards available for you. Many credit websites, such as WalletHub and Credit Karma, have credit card comparison tools. These sites allow you to search for credit cards based on the criteria that are most important to you.
When looking for a credit card, it’s important to focus more on the interest rates rather than on the rewards the credit card offers, and always read the terms and conditions so you know what you are agreeing to!
Above all, it’s important to educate yourself beforehand and practice good credit habits. Building good credit takes time and effort, but the investment is worth it. In no time, you’ll be well on your way to establishing a great credit score and a solid financial future.
The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!
