Don’t apply for your first credit card without reading this.
- Applying for your first credit card is a major financial milestone.
- Your credit score could be affected by your borrowing behavior.
- You could also earn valuable rewards and enjoy great cardholder benefits.
Applying for your first credit card is an important step. Your card could potentially help you build good credit and Earn valuable rewards that make your daily spend more profitable. But to make sure you end up with the right card – and that you use it in the most responsible way – there are five key things you need to know.
1. Credit card interest rates can be very high
One of the first and most important things to realize when applying for your first credit card is that the interest rates on this type of debt can be extremely high. It’s not uncommon for a card to have an interest rate of 17% or higher, especially if you’re getting a card aimed at new borrowers who may not have a strong credit history.
When a credit card has a high interest rate, carrying a balance can be costly. Ideally, you’ll want to avoid charging your card more than you can fully repay when you receive your statement. If you can pay off your card, you’ll avoid those costly interest charges and enjoy the benefits of a card without going into debt, which can affect your financial future.
2. A single late payment can hurt your credit score
After you’ve been approved for your first credit card, you’ll want to make sure you make at least the minimum payment on time, every time. Your card issuer will report your payment record to the three major credit reporting agencies. If you’re late with a payment, it can cause your credit score to drop dramatically, especially if you only have one card on your credit report and don’t have a strong credit history. responsible borrowing.
Since your credit score is used by businesses, including landlords, to determine if you’ll be a reliable customer, you don’t want to risk lowering your score. To make sure you don’t inadvertently miss a payment, consider setting up automatic payment so that money is sent directly to your creditors on time.
3. Credit card rewards can be valuable
While it can be difficult to get your first credit card if you don’t already have a strong credit history, you will hopefully have some good card options that offer rewards. Many cards, even some aimed at new borrowers, offer cash back, points or miles. If you are able to earn rewards for expenses you would have to incur anyway, this can be a major financial benefit.
To get the most out of your credit card, try to find a card that offers bonus rewards for the things you spend most often. So if you travel frequently, for example, see if you can apply for a first card that gives you extra points for booking plane tickets, hotels, or rental cars.
4. Maintaining a low credit utilization rate is key to improving your credit
If you want to make sure your new credit card helps you build credit, you need to understand how credit utilization ratios work. Lenders consider your credit utilization ratio when setting your score, and a lower utilization ratio is better than a higher one.
So what’s your credit utilization rate? It refers to the amount of your line of credit that you use on your cards. If your card issuer gives you a credit limit of $1,000 and you charge $500 to the card, you will have a utilization rate of 50%. Anything over 30% can hurt your credit, so you should try to avoid that.
5. Cards can be chargeable, but sometimes they are worth paying
Finally, you should be aware that sometimes credit cards come with fees that you will have to pay beyond the interest rate.
Sometimes these fees can be worth paying. For example, if you sign up for a travel card with a $99 annual fee but get free checked bags and a $100 statement credit for in-flight purchases, the fee might be worth it. paid for these benefits.
In other situations, however, the additional costs imposed by your card issuer may not be worth it. For example, if your card charges foreign transaction fees and you travel abroad often, you might end up paying more for all your purchases while you’re away.
By keeping these five factors in mind when applying for a card, you can choose a card that rewards your spending and doesn’t impose unnecessary fees on you – and you can ensure that you’re using your card wisely to help rather than hurt. your credit score.
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