Are you thinking about getting a credit card for the first time? Researching, choosing and applying for an account may feel intimidating. However, if you do your homework, take your time and follow the process below, you may feel confident about taking this significant financial step.
[Read: Best Credit Cards.]
A Step-by-Step Guide to Getting Your First Credit Card
1. Confirm Your Readiness for a Credit Card
Before you do anything else, you must determine if you’re a good candidate for a credit card. Many financial experts believe you should open an account as soon as you’re eligible, generally at age 18.
“Opening a credit card early is a great way to build your credit over several years so that you can qualify for larger purchases later on — like a car or house,” says Jen Swindler, certified financial planner, accredited financial counselor and owner of Money Illustrated Advisory Services.
However, Benjamin Simerly, certified financial panner and founder of Lakehouse Family Wealth, has a different view. “When to get your first credit card is far more about current spending and savings habits than age or stage of life,” he says. “As with taking on any new line of credit, I always like to talk through the ability to handle it responsibly with clients. It’s important for people to have honest conversations with themselves first.”
Simerly continues. “As a rule of thumb, if someone can keep within their savings and spending goals for six months, they are likely ready,” he says. “If they have trouble, I often advise that it may be best to wait until their habits can sustain a healthy daily budget before taking on credit cards.”
2. Learn About Credit Cards
Your next task is to research how credit cards work. Armed with that information, you’ll be better able to choose the right card for your situation. For example, start learning about a credit card’s annual percentage rate. This refers to the interest rate you’ll be charged if you carry a balance. The lower the APR, the less interest you’ll need to pay. You can avoid being charged interest by paying off your account in full each month.
You should also understand key credit card concepts, such as:
— Types of cards (student, rewards, balance transfer, secured, etc.)
— Rewards (cash back, points, miles, etc.)
— Welcome bonuses (rewards typically earned by spending a certain amount soon after getting your card)
— Perks (protections and benefits for being a cardholder, such as airport lounge access and cellphone insurance)
Finally, become familiar with credit scores and how they’re calculated. For instance, your FICO score places the highest emphasis on payment history, so be sure to pay your credit card bill on time every month — even if it’s just the minimum amount.
[READ: Best Credit Cards for Students]
3. Find and Compare Potential Cards
Now that you know what to expect as an account user, it’s time to choose a credit card. Wendy Coop, founder of Savvy Budget Girl, says your best bet may be to explore your bank or credit union’s offerings. You might have a better chance of getting approved for an account since you have an existing relationship with the financial institution.
You can also discover and research countless other options online. Simerly encourages you to search for keywords such as “best credit cards for first timers.” When you run these searches, you’ll find many credit cards designed for students since they’re one of the most likely demographics looking to build credit. However, while these cards are often marketed to college students, you don’t always have to be one to apply, says Coop.
Store credit cards, meant to be used exclusively at specific retailers, could also be an option because issuers may be willing to work with consumers with limited or less-than-perfect credit histories. However, Coop advises you to try to get a card with a Visa or MasterCard logo on it if possible so you can use it anywhere in a financial pinch.
No matter where you find potential credit card matches, quickly rule out those that don’t fit your selection criteria. For example, you may decide you don’t want to pay an annual fee. Then, compare your top picks in terms of APR, rewards, benefits, credit score requirements and other important parameters.
4. Apply for the Best Option Online
There may be multiple cards that seem appealing, but it’s wise not to apply for all of them. Each time you submit an application, the credit card issuer will make a hard inquiry on your credit report, which can reduce your credit score. Plus, too many hard inquiries within a short period can make you appear desperate for financing, which may discourage credit card issuers and other creditors from lending you money.
So, only fill out an online application for the card that fits your needs best — and gives you the highest approval odds.
Once you submit the application, Coop says you should receive a decision quickly. If approved, the card issuer will tell you your credit limit and may provide a virtual card you can use to shop online while you wait for your physical card to arrive in the mail.
5. Activate Your Account and Start Using It
When your card arrives, activate it by calling the credit card company or accessing your online account. Then, decide how you’re going to use it. Coop suggests putting a small recurring charge on the card each month, like your cellphone bill. “That way, your cellphone bill is always paid,” says Coop, “and you’ll build credit and a positive payment history from paying off your balance each month.”
Be careful if you intend to use your card to cover urgent, unexpected expenses. It’s wise to build a dedicated emergency fund to cover those costs. However, swiping your card to bridge the gap between payday and a crisis is safe for your finances if you prioritize repayment once the issue is resolved, says Coop.
Alternatives to Getting Your First Credit Card
If you’re not quite ready to apply for your first credit card, or you’re having difficulty qualifying for one, don’t worry — there are other ways to build your credit.
Become an Authorized User
If you have a family member or friend with good credit, they can add you as an authorized user on one or more credit card accounts. As an authorized user, you’ll be able to shop with the card and benefit from the creditworthiness of the primary cardholder. However, if they spend close to their credit limit or forget to make a payment, your credit score could take a hit, even though it wasn’t your fault.
On the other hand, not all credit card companies report authorized users to the credit bureaus. In that case, becoming an authorized user on a responsibly managed card wouldn’t help you build credit.
Obtain a Secured Credit Card
When you open a secured credit card account, you deposit a certain amount of cash into it, which generally becomes your credit limit. Like a traditional, or unsecured credit card, you use the account to shop or pay bills. Then, you pay your balance and repeat the process until your credit score increases to a point where you can qualify for an unsecured card.
But make sure the credit card company reports secured card activity to the credit bureaus. Otherwise, your responsible use won’t have any effect on your score.
Using a secured credit card to build credit is low-risk for the creditor and you. If you don’t pay on the account as agreed, the creditor will take some or all of your initial deposit as reimbursement, depending on how much you owe. You also can’t dig too deep of a debt hole because you had to put up the cash as collateral from the start, so your credit limit may not be that high.
[Read: Best Secured Credit Cards.]
Best Practices for Using Your Card
Now that you have a credit card in hand, it’s important to use it the right way. Here are a few best practices to keep in mind.
— Create and follow a budget. Having a budget can help prevent overspending, which may lead to taking on lasting debt.
— Pay your bill on time — every time. Payment history is critical. “I’ve seen even one late payment drop an almost-perfect credit score by 60 points and take a client more than a year to recover their near-perfect score,” says Simerly.
— Set up automatic payments. That way you never have a late payment on your credit report.
— Pay off the card in full every month. Doing so will prevent your account from incurring interest, which can get expensive on large balances.
— Keep your credit utilization low. Try to keep your balance at or below 30% at all times. This means if your card has a $1,500 limit, keep it less than $450.
— Use the card often enough. A lender may close your account after a period of inactivity, but there are no industry rules or standards as to when that would be. You shouldn’t be concerned about not using your card for a month or so, but if you go any longer than that you may want to reach out to your issuer about its policy to avoid an unexpected closure.
“I’ve seen younger borrowers be afraid of credit cards at times, worrying they’ll rack up debt,” Swindler says. “As long as you use the card wisely, treating it just like you would treat cash in the bank, credit cards are a useful tool for your long-term financial future.”
More from U.S. News
How to Spot Bad Credit Card Advice on TikTok
4 Credit Card Perks That Aren’t Worth the Hype
Can You Use Your Credit Card to Bet on Sports?
How to Get a Credit Card for the First Time: A Step-by-Step Guide originally appeared on usnews.com
Update 11/01/24: This story was previously published at an earlier date and has been updated with new information.
