If you’re looking to get your first credit card, you might be overwhelmed with everything you don’t know. In this article, we’ll give you an overview of what you need to know before getting your first credit card, from checking your credit score to choosing between rewards cards.
Before you start
You probably won’t qualify for some cards
If you’re new to credit, you can’t assume you’ll be approved for any card you’re interested in. If you have bad credit or no credit at all, your credit card options are limited. Credit cards with the best rewards require a credit score in the “good” range, which starts at 670 for the FICO credit score model.
The reason the best credit cards may not give you a welcome mat is that when you apply for a card, the issuer reviews your credit report before making the decision to approve or deny your application. The issuer does this by looking at your credit report. If there is not enough evidence that you are a good borrower, they will determine that you are too risky to lend money and deny your request.
You can check your credit for free
Since you want to minimize rejected applications, it makes sense to check your credit score before you start shopping. Fortunately, there are several ways to check your credit score for free and without lowering your score.
that of the capital CreditWise program, American Express MyCredit Guide and The Chase credit journey are available to all consumers, whether you are a customer or not, and they all allow you to view your TransUnion credit report.
Once you know where you stand, you can apply for cards in the appropriate credit range or choose to work on improving your score before applying.
When you select a card
Secured credit cards are easier to get
If you have fair or bad credit, a secured credit card gives you a foot in the door. Secured credit cards are easier to obtain as they require a (refundable) security deposit. Generally, your credit limit will equal the amount of money you provide, and most lenders require a minimum of around $200.
For this reason, secured credit cards are not for people who need to borrow money. They are for people who have a bit of cash they can stash away in exchange for an opportunity to build their credit from scratch.
The two main types of rewards: cash back and travel points
If you have good credit, you can probably get approved for a rewards credit card. There are two main types of credit card rewards to choose from: cash back and travel points. Cash back is a simple concept. You get a percentage of every purchase returned to you. It’s like a little discount.
For example, the Wells Fargo Active Cash® card returns 2% on every purchase. So for every $100 you spend on the card, you get $2 back. You can redeem cash back as a credit that lowers your bill, or often you can even have it deposited directly into your bank account.
Travel rewards are a bit trickier, especially for new credit card users. With a travel card, you earn points or miles that you can then redeem for airfares, hotels, car rentals, and cruises, among other travel purchases.
For example, the Capital One VentureOne Rewards credit card offers 1.25 miles per dollar spent on every purchase. You can then use those points to book travel deals through Capital One’s travel portal or even cover the cost of travel-related purchases you’ve made elsewhere.
When you apply
Asking for too many cards will hurt your credit
If you apply for a lot of credit cards in a short time, you run the risk of having multiple inquiries on your credit file. This can lower your credit score and seem risky to other lenders, making it harder to get approved for credit.
We recommend that you only apply for one credit card at a time and wait two months to apply for another. This gives your credit score time to recover from the difficulties while allowing you to make an informed decision on which cards you want to add to your wallet.
What counts as income on a credit card application
When you apply for a credit card, you will need to complete an online application (or a paper application, if applying by mail or in branch) and provide your earnings. In addition to basic income information, your credit card issuer will also want to know your employer’s name and contact information. Although you don’t need a certain income to get a credit card, the number you provide can impact both your approval and your credit limit.
If you are over 21, you can list any income to which you have a “reasonable expectation of access”. This means that in addition to your salary from your full-time job, you can include a spouse’s income (if you have access to that money), a parent’s allowances, and the income of a freelancer or contractor. parallel work. For students, income from a credit card application can even include scholarship and grant money left over after paying tuition and other school expenses.
After being approved
Two things you need to do to build your credit
Credit scores are calculated using mathematical models. The most common model, FICO, uses five main factors, each weighted differently. Two factors, payment history and amounts owed make up 65% of your credit score. This means that these two factors are the most important in building – or destroying – your credit score.
The first factor, payment history, takes into account whether you paid your bills on time. It’s a simple concept, but more than a third of your score is determined by this factor. If automatic payment is an option, take advantage of it.
The second factor, amounts owed or credit usage, accounts for thirty percent of your credit score. It’s the ratio of your total credit card debt to your total available credit (your credit limit), and you want it low. For example, having a balance of $500 while you have a credit limit of $1,000 gives you a utilization rate of 50%. There is no set number too high, but a good rule of thumb is to keep it below 30% at all times.
Never wear balance if you can avoid it
If you’ve ever heard that having a small balance on your credit card is good for your credit, know that’s a myth. There’s no upside to doing this, and the downside is that you’ll accrue interest on that balance, even if it’s tiny.
It’s best to use your credit card like a debit card, only buying things you can pay for directly. This way, you’ll never have trouble paying your bill in full each month. If you are unable to pay the entire bill, pay at least the minimum payment required by the due date. You’ll start earning interest on whatever’s left over, but it’s better than not paying anything and suffering the consequences of late payment.
Consider upgrading your credit card instead of canceling it
After using your first credit card responsibly for a while, your credit score will likely improve, qualifying you for a higher class of credit cards. What you don’t want to do is close the credit card account, as that will erase that line of credit from your credit report. Unless you are charged a fee to keep the account open, there is no reason to close it.
There are two best choices. The first is to apply for whatever new credit card you want, but keep the old card open, perhaps tucking it away in your wallet. The other is to call your current credit card issuer and ask if you can upgrade to a better credit card with that same issuer. This shouldn’t require a new application or credit application. In some cases, you may even benefit from a lower interest rate or a higher credit limit.
The bottom line
It can be scary to start using credit cards, but it’s also a key part of learning about credit. Start small. You might want to get a basic card with no annual fee to start with and use it for small purchases. The important thing is to build a strong payment history that will help you qualify for top rewards cards in the future.