How to Choose Your First Credit Card

Picking your first credit card can seem overwhelming, but by keeping in mind a few key tips, you'll be able to make the right decision with confidence.

Whether you’re a teenager without credit history or an adult who’s familiar with loans and debit cards, choosing your first credit card can be tough. The prospect of finding a card may seem overwhelming, but with the right knowledge, you’ll be able to choose the right card and begin building your credit. Here are several things to consider when choosing your first credit card.

1. Do Your Research

Be aware of what getting a credit card entails, especially because credit mistakes can negatively affect your life and financial standings for a long time. Whether you’re scouring the Internet, speaking with a credit expert or reading our site, it’s important to learn as much as you can before taking the plunge. Being well-versed in the process of applying for and using credit cards will benefit you in the long run. Don’t skimp on research.

2. Ensure You Have Steady Income

Credit card issuers typically require a verifiable income when someone is looking to apply for their first credit card. After all, being able to repay your balance is the key to getting approved for a credit card. Lenders need to know that you’ll pay them back and that they can trust you. Federal law requires that adults under age 21 have income before they can be approved for a credit card without a cosigner. So if you’re a young adult, consider getting a part-time job so you don’t have to find someone to cosign.

3. Choose Wisely

There are plenty of credit cards to choose from. It can be overwhelming to sort the possibilities. While searching, focus on your main concerns and struggles. Are you worried about paying bills on time? Consider a card with a low annual percentage rate. Aren’t sure you’ll have enough self-control for a credit card? A secured credit card could be a great option. There’s a credit card that works for everyone. Don’t choose a credit card because of a cool design or dreamy rewards without checking all of the details.

4. Read the Fine Print

Before you choose your first credit card, make sure you’ve read the terms and checked the fees, rewards and interest rates. A bad combination of card features could come back to bite you if you aren’t careful when signing up for a card. 

5. Consider a Secured Credit Card

Speaking of secured cards, they’re a great option for your first card for several reasons. (Not sure what a secured card is? This article explains it all.) As long as you pay responsibly, your score goes up, and you can switch to an unsecured, card. Some secured cards give you cash back, or offer no annual fees. Your deposit acts as your credit limit, so if you can only pay a security deposit of $200, you’ll have a $200 limit. Having a lower limit shouldn’t be an issue, though, because you’re just starting out with credit. 

Barry Paperno, a credit expert who writes for Speaking of Credit, says a secured card is the way to go for first-time credit card owners. “You can build a really good credit score with just a secured card,” Paperno said. “Plus, because of the security deposit, you won’t have an unpaid charge-off at the end.”

6. Avoid Cards That Require Excellent Credit

Being denied credit doesn’t affect your credit score, but your score is still affected by lenders looking into your credit history. If you apply for your first credit card and it’s out of reach, you’ll end up stuck in a loop of hard inquiries and rejections. “Most card lenders won’t even give you an unsecured card if you have no history,” Paperno said. If you’re not sure where your credit stands, check out your free credit report snapshot on Credit.com.

7. Use Loans to Your Advantage

Essentially, a positive loan history can show card issuers that you’re low risk and are capable of paying them back on time. Loans count as credit, so if you pay them back responsibly that positive information will remain on your credit report for 10 years after being closed. Conversely, a negative loan history will stay on your report for seven years. A loan that’s closed won’t help generate a credit score, but it still looks good to lenders on your report. (For more on loans and their connection to credit, visit our Loan Learning Center.)

8. Become an Authorized User 

A great way to get your first credit card while limiting the responsibility and pressure is by becoming an authorized user. Paperno recommends this as a simple way to build your credit score. This way, you can have a credit score without actually having your own credit card. If you eventually want your own card, being an authorized user makes your score and report look significantly better to lenders.

But remember — if the person whose card you’re becoming an authorized user on falls behind on payments your credit will be impacted as well. Choose someone you trust with a good credit history.

Ultimately, choosing your first credit card is a big decision but an important one. Remember to take the time to research and find which option is best for you when opening your first credit card and every card that follows.

Image: PeopleImages

The post How to Choose Your First Credit Card appeared first on Credit.com.

8 Common Credit Card Mistakes You Might Be Making

Credit cards are a super convenient financial tool, but they can often be confusing.

Do you have a credit card in your wallet? Chances are, you do. And if you’re one of these plastic carriers, you probably want to be using that card the best possible way, right? Well, you may be making some mistakes without even realizing it. To help, we’ve rounded up eight common mistakes to help you discover if you have one of these habits and ultimately correct it.

1. Paying Your Bills Late

“What can do you the most harm is paying late, or not paying at all,” credit score expert Barry Paperno said.

Late payments affect your credit score, plus the late fees and interest quickly add up. Besides all of the effects that hit you right away, Paperno said it can take years to recover from numerous late payments. And if you let it go too long, you could be hit with a charge-off (the point, usually after six months without payment, at which the lender writes your account off as a loss), which stays on your credit report for seven years.

2. Closing a Card You Don’t Really Use

Despite the fact that you never use a particular credit card, closing that card isn’t necessarily the answer. When you close cards, you affect your credit history, usually negatively.

“Don’t make the mistake of closing cards,” Paperno said. “Especially if you think it will help your score, because that will never raise your score.”

When you decrease the amount of credit available to you, you end up increasing your credit utilization ratio, which can hurt your credit. Instead of closing a card, consider simply using it every so often and keep the account active. There are times when closing the card may make sense, like if it carries an annual fee that is hurting your budget, but you’ll want to think about it carefully before making a decision.

3. Not Requesting Changes to Your Terms

While card issuers might seem intimidating, you could be making a mistake by not attempting to change your terms. You could potentially negotiate a lower interest rate or annual fee, helping out your budget in the process. If you’re trying to rid yourself of a balance quickly, call your credit card company. They may help you get a lower interest rate if you just ask.

4. Spending Money Just to Get Rewards

If you find yourself using your credit card unnecessarily to earn rewards, it could be costing you. Rewards are fantastic, but altering your spending habits just to get free stuff isn’t going to be as beneficial as it may sound. If you overspend and carry a balance, you’ll likely lose all those rewards to interest charges.

5. Not Knowing Your Credit Score

If you don’t check your credit score regularly, you’re not educating yourself as much as you could be. Your credit is considered in a lot of situations, from when you apply for a mortgage or car loan to a version of your credit reports being reviewed by a potential employer as part of the application process. Haven’t checked yours in a while? You can see your free credit report snapshot on Credit.com.

6. Only Paying the Minimum Balance

If you only pay your minimum balance each month, you’ll likely end up having to pay more interest down the line. While it might seem like a quick fix to save your money and pay the minimum, in reality you’re dragging out how long it’ll take to pay your entire balance. Keep avoiding those late fees, but if you can, you’ll want to pay more than the minimum.

7. Applying for Out-of-Reach Credit Cards

“Another common credit card mistake is probably applying for too many cards, the wrong cards, or both,” Paperno said.

By applying for a card you aren’t qualified for, you end up without a card and with a “hard inquiry on your report for the next two years,” he added.

While your credit score isn’t directly affected by being denied credit, the more hard inquiries on your credit report, the more dings you’ll see to your scores. Make sure you are a good candidate before applying for any type of credit card.

8. Spending More Money Than You Actually Have

Having a credit card often allows people to make the mistake of overspending. It’s a mistake to charge your credit cards close to their limit, Paperno said. Just as closing a card will raise your credit utilization, so will coming close to your credit limit. Either move can hurt your credit score.

Making Positive Credit Choices

To avoid these eight mistakes from the start, make sure you educate yourself. You don’t have to know everything, but you should be aware of how to be responsible with your credit cards. When a car, house or student loan is on the line, you should be knowledgeable and ready, not hurting from your previous credit card mistakes.

“If you pay on time, keep your balances low and apply for new credit only when you need it,” you’ll be in good shape, Paperno said.

Image: Peopleimages

The post 8 Common Credit Card Mistakes You Might Be Making appeared first on Credit.com.