Getting your first credit card can unveil the ultimate catch-22: Without a credit history, it’s nearly impossible to score a good card. But without a credit card, it can be tough to build a credit history.
So, where do you start when looking to secure that first piece of plastic? There are lots of places to kick off your journey, some better than others. And a few traps to watch out for. Here’s what to know.
[See: 12 Habits to Help You Take Control of Your Credit.]
Consider the timing. Before you even apply for that first credit card, consider whether you’re ready to handle the responsibility.
For some credit-card newbies, that right time might be the last year of high school, where they can experiment with credit cards under the watchful eyes of their parents. For others, the best time might be during college when having credit is a stepping-stone to a new level of financial independence. Other would-be debtors may wait until they score that first job — and first paycheck — to submit their first credit card application. The right time is up to you — and potentially your parents if they’re helping you out.
Here’s the hurdle. Your chief struggle will be landing a credit card — especially one with attractive features and rewards — with a limited or nonexistent credit history.
Get a sense of where you stand by checking your credit report. You can secure one for free from each of the three credit bureaus — Experian, Equifax and TransUnion — per year at annualcreditreport.com.
You might be surprised to find that your student loans or on-time bill payments have armed you with a fairly robust credit history. Or you might discover that you have no credit history — not even a credit report — at all.
If you’ve got a robust credit history, then congratulations. You’ll potentially be able to qualify for a traditional credit card that carries pretty good terms and low interest rates.
If you’ve got no credit history, then you’ll have to work harder to score that first credit card. Take heart, experts say. “The first thing you should try to do is to get a ‘regular credit card,'” says Bill Hardekopf, CEO of the credit card-comparison website LowCards.com. “But there are certainly categories of cards or classes of cards that are marketed specifically for people with limited or no credit history.”
[See: 12 Simple Ways to Raise Your Credit Score.]
Where to start. You might begin your hunt for a traditional credit card online, comparing rates and features on a card-comparison website … or several. “Credit card-comparison sites are very good for getting information and comparing,” says Beverly Harzog, credit card expert and author of “The Debt Escape Plan: How to Free Yourself from Credit Card Balances, Boost Your Credit Score, and Live Debt-Free.” “Pick about three or four [sites], and you’re going to get different options because they don’t all carry the same card, and keep in mind they have affiliate relationships with these issuers.”
Beyond scouring the web, you may also want to head to your family bank. “You might have a slightly better chance of getting a credit card from the bank that you’ve dealt with, or your mom and dad have done business with for years,” Hardekopf says. “But that’s not to say it’s the best credit card you can find.”
From there, you may be able to qualify for your first credit card. If you’re still not able to qualify, then you may want to check out secured cards or retail cards. These credit tools tend to be easier to qualify for than a “regular credit card.” But they come with their own set of risks and downsides.
A secured card is a powerful tool … when used correctly. A secured credit card works this way: You deposit your own cash with the card issuer, reducing the lender’s risk. If the issuer reports your activity to the credit bureaus — and you should choose a lender who does — then you’ll be able to build your credit score from scratch. You’ll find that secured cards, however, may charge high fees (including annual fees, maintenance fees and monthly fees) and higher-than-typical interest rates. So, you’ll shell out serious cash if you can’t pay your balance in full — or miss payments — each month.
Store credit cards, such as Target’s REDCard, can also be another way to build credit history. For a retail card, select a store you frequent and research its card ahead of time, Harzog says. Then, choose one that offers low fees and reasonable flexibility. You may find it easier to qualify for a store card than a regular credit card, but it could come with high interest charges, fees and may only be usable in one store.
[See: Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.]
Why it’s important. How you handle your first credit card will dictate your credit health for years to come, experts say. If you handle it responsibly — making on-time payments and keeping your credit utilization rate low — you’ll be able to graduate to a “real credit card” or more competitive credit card in the future.
But if you miss payments, max out your limit and rack up fees, then you’ll find yourself cycling further down into low-credit-score purgatory. “The bad things that you do [don’t] get wiped off the slate immediately,” Hardekopf says. So, treat this first card as a barometer for the rest of your financial life. It’s just that important.
More from U.S. News
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What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments
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How to Get Your First Credit Card originally appeared on usnews.com
