Getting your first credit card is a huge milestone — and a big adjustment. You might already have a sense of how credit cards work and how to handle a credit card responsibly, but the devil is in the details. Understanding those ins and outs before diving in will save you money and help you build good credit more quickly.
The best credit cards aren’t for beginners
As a newcomer to credit, you probably won’t be able to qualify for the most valuable credit cards — the ones with rich rewards and perks, big sign-up bonuses or long 0% interest periods. Those cream-of-the-crop products are available only to applicants with good or excellent credit (scores of 690+) and longer credit histories who meet certain income requirements.
You’ll likely have to start smaller with your first credit card, with a product geared toward people with limited or no credit history. It’s not all bad news, though — many such cards offer decent rewards and don’t charge annual fees. Some options to consider include:
- A student credit card, or a credit card designed for college students.
- A secured credit card, or a card that requires a cash deposit.
- A credit card marketed to those with fair credit, generally defined as a credit score of 630 to 690.
- A credit card you pre-qualify for, either through your bank or online using pre-qualification page or other similar tools.
A security deposit makes a credit card easier to get
If you’re having trouble getting approved for your first credit card — say, because you’re starting out with no credit at all — try a secured credit card.
Secured credit cards are designed for people with damaged credit or no credit. To open your account, you’ll first need to put down a cash deposit. Your credit limit is typically equal to your deposit. Minimum deposit requirements range from $200 to $500, depending on the card. Most secured cards allow you to deposit more to get a higher credit line.
Falling behind on payments could mean losing this deposit. However, if you always make on-time payments and spend well below the card’s limit, you could establish good credit within a matter of months. At that point, your issuer might upgrade the account to a regular unsecured card, or you might apply for an unsecured card and close the secured card in good standing. In either case, your deposit would be refunded.
Your first credit card can build your credit — or ruin it
One of the main reasons to get your first credit card is to boost your credit. If you’re not careful, though, it can have the opposite effect. It all depends on what you do.
Every month, your issuer will report your credit card activity to credit bureaus — the companies that compile the credit reports that form the basis of your credit scores. The reported information includes whether your payments have been on time and how much of your available credit you’ve used. Late payments are bad. Maxing out the card is bad.
To make sure your credit card activity helps as much as possible, pay in full and on time every month and stay well below your credit limit. (A good rule of thumb: Keep your balance under 30% of your available credit at all times.) You can also track your credit scores to see where you stand.
You can see the rates and fees before applying
Credit card issuers are required by federal law to publicly disclose certain terms, such as interest rates and fees, before you apply. These are displayed in what’s called a Schumer box, a table that can usually be found on a credit card’s application page online (look for a link marked “Rates and fees,” “Pricing and terms” or something similar) or on a slip enclosed in paper applications. The Schumer box includes the card’s:
- Annual fee, or what it charges cardholders on a yearly basis.
- APR, or annual percentage rates. This is the interest rate you’ll pay on balances you carry from month to month. Some cards charge different rates on different types of balances, including purchases, balance transfers (debts moved to the card from other accounts) and cash advances (cash withdrawn with the card, usually at an ATM). Some cards, though not many, also have penalty APRs, which they impose after a late payment.
- Foreign transaction fees, or fees charged when making purchases outside the U.S. — typically, 3% of the amount charged.
- Late fees, which are charged when you pay late by even a day or if you don’t pay at least the minimum amount due.
Of course, there’s some information you won’t get until after you apply. For example, in most cases you won’t know what your credit card limit is until your application is approved.