Your First Credit Card

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Before you slide it into your wallet and head for the store, you’ve got some things to consider.

Key Points

  • Credit cards can be highly useful tools, but they only help you if you use them wisely.
  • Make sure you understand everything in your user agreement.  Always make informed decisions when applying for a new card.
  • Avoid common mistakes such as not shopping around enough for a credit card, missing payments, making minimum payments, maxing out your card, etc.

Your First Credit Card

Before you slide it into your wallet and head for the store, you’ve got some things to consider.

First, ask yourself what you are going to use it for. If you’re a convenience user, you intend to use it as a tool for managing purchases and spending.  If you’re a credit user, you intend to borrow money you don’t currently have and then pay it back over many months. Convenience users build better credit scores and don't fall into many of the common traps credit cards can present.

Second, be ready to read the fine print of your user agreement. You never want to see unknown fees pop up on your monthly bill, and you never want to be late on a payment.

Why sign up for a credit card?

  1. Build Credit: Your credit score is a number used by banks and other financial institutions when determining if you qualify for an auto or home loan, among other things. But to get a good credit score, you must prove yourself financially. Responsibly using a credit card is one of the main ways to create a credit history and improve or maintain your credit score.
  2. Traveling Abroad: Instead of carrying around a wad of Euros or Pesos, you can keep with your card. Just be aware of any exchange fees your provider might charge and if your card is accepted overseas.
  3. Consumer/Fraud Protection: Most providers will not hold you responsible if unrecognized charges show up on your card or if it gets stolen. Once you report an incident, the company can no longer hold you liable for subsequent charges.
  4. Convenience: Some places don't accept debit cards, and rental car places won't let you leave the lot without seeing your credit card. You might also have times when a bill is due but you don't get paid for another two days, or you might simply be short on cash. While credit cards should not be your emergency fund, they can be a help from time to time.
  5. Employment: While current and potential employers cannot access your credit score without warning, they can request, with your official consent, a special credit report from any of the major credit bureaus.  This credit report doesn't contain quite everything a lender can see, but it does contain your credit score and a few other pieces of information that help employers determine if you are a high-risk candidate.  

What types of cards are available to me?

There are many credit cards available to you, but perhaps the fastest, easiest way for you to open a credit line is through a student credit card.  These cards are especially designed for students in their current financial situation, and they can offer rewards and/ or rates to meet your needs as a college student.  It is also much more likely that you will be approved for a student card than a general credit card as a first-time credit user.

What is the best way to obtain a credit card?

  • Know your credit score, if you have one already. If you want to know your credit score, you generally must pay for it. Myfico.com and AnnualCreditReport.com are the go-to places for doing so.  This is one of the most important steps you can take in applying for a card.
  • Don't apply for the first offer you see. ​This is a very common mistake, especially since the first offers you get seem simple and lucrative.  However, if you don't shop around first, then you could miss out on even better rates and cards that fit your circumstances.  One thing to keep in mind is that every time you are rejected from a credit card application, your credit score takes a hit, so don't apply for an offer unless you're certain it's for you.
  • Include all of your income in the credit card application. Not only does this open up more credit opportunities for you, you can be charged with credit fraud if you fail to accurately report your information.

What should you look for?

  • Grace Period: When your bill arrives at the end of the month, you’ll have a certain number of days to pay it off (usually 21-30) before it is considered late. If you pay it even a minute late, interest has already started to accrue.
  • Credit Limit/Line: The card you have has a limit on it. Credit limit is decided on by your credit provider. For college students, that limit might be somewhere between $500 and $1,500.
  • Interest Rate/APR: If you do not pay off your monthly bill in full and on time, interest will start to accrue. A competitive interest rate for credit cards sits around 8-10%.
  • Annual/Hidden Fees: Some companies might charge you an annual fee for using the card. Other companies might charge you for redeeming rewards, spending beyond your credit limit, terminating the card or for not using it. Don’t let these catch you off guard.
  • Rewards: Some providers offer air miles, cash back or 0% interest for say the first six months. Naturally, we want to know about these. Who doesn’t want free flights after all? Particularly with the 0% interest offers, make sure you know how much your interest will be after those six months run out.

What are APR's?
The annual interest rate (APR) is a must-know aspect of credit cards. They are essentially the yearly interest rate on your card. APRs are a simple way to compare credit card offers. The lower the interest rate, the better. In addition, APRs can be fixed or variable. Fixed-rate APRs do not change; meaning, you can expect the same interest charge for each bill on your rollover balance. However, if a change were to occur, you must legally receive a 45 day notice from your provider. Variable APR rates act oppositely; they can either go up or down, based on something called a prime rate, and you will not receive notice when this happens.

If you pay your credit card bill on time and in full every month, you don’t have to worry about APRs (but you will have to be mindful of other fees when choosing your card).

Getting Out of Debt

When using your credit card, make sure you never spend over the amount you have in your budget.  However, if you've already accumulated some hefty credit card debt, it's time to pay it off before you accrue too much interest to handle.  Paying off your credit card bill may seem impossible at first, but it's completely do-able.  Please see our Borrowing PrinciplesDebt Management, and Debt Repayment articles for more information.

Common Mistakes

  • Not shopping around for better APR rates. Make sure you make plenty of comparisons and find the best rates for your circumstances.
  • Not reading the fine print. This is one of the most dangerous mistakes you could make when getting a credit card.  Make sure you know exactly what you're signing up for.
  • Making the minimum payment.  If you always make the minimum payments on your balance and continue to use the card for purchases, then it could take you many years and a lot of extra money (paid in interest) to pay it off.  Pay off the balance in full every time, and don't ever use the credit card if you cannot pay for everything you purchase with it. 
  • Paying your bill late.  This can damage your credit score and invoke other penalties in your contract, including heightened interest rates. 
  • Maxing out your card.  This can prevent you from making further purchases on your card, invoke hefty over-limit fees on your account, and also be highly difficult to pay off.

Credit Card Calculator

Make sure you have an idea of what you're getting into when you apply for a credit card.  If you're thinking of applying for a specific card, see if the financial institution you're working with also provides different calculators to find your minimum monthly payment, the impact of your current interest rate on your balance, or similar calculations.  While we do not promote or endorse any specific credit card calculators, we have found that BankRate provides several objective credit and debt calculators which can help you begin your own research.

Pre-Screened Offers: Opt-Out

​Pre-screened credit card offers refer to the credit card offers you receive (usually in the mail) that announce your pre-approval for a certain credit card.  While these offers may seem like a quick and easy way to obtain a new credit card, they also pose a greater risk of identity theft, and insurance and credit institutions will continue to access your information to present you with these offers.  It is your decision to opt-out or not; you can do so for five years at a time or permanently, with the option of opting-in again if you so choose.  Visit this article from the Federal Trade Commission for more helpful information on this subject.  Whether or not you opt-out, however, make certain to shred all documents and pre-screened offers you will throw away. 

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