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.