So you’re ready for your first credit card. Nice! There is a wealth of opportunity waiting for you on the other side of that credit application. Your options are about to get greater, and your life is going to get way more convenient. There really are a number of good reasons to get a credit card. Honestly, there are only a few pitfalls to watch for, and you’re smart enough not to fall for them. Here’s what you need to know about getting your first credit card.
What Type Of Card Do You Want?
Before we start laying out some advice on getting your first credit card, you need to know that not all credit cards are created equal.
If you’ve ever wondered why people bother with more than one card, it’s not so they can rack up more charges; it’s because the utility and benefits of different cards can complement one another.
Prepaid credit cards are good for keeping yourself on the straight and narrow. You can only spend down the amount you deposited with the card, so you can’t get in debt over your head. They’re simple to use and straightforward to get.
Rewards credit cards will pay you — yes, pay YOU — cash back on your purchases, or give you travel rewards (such as airline miles or free hotel stays).
Low- or no-interest credit cards, like 0% APR cards, are great for balance transfers or for financing larger purchases, when you’d like to pay off a bigger expense over a longer time-frame.
Secured credit cards are the perfect solution for folks with bad credit. It’s possible that you’ve done a number on your credit before ever applying for a card, thanks to late rent payments, for example. But that doesn’t have to prevent you from building your credit rating now. With a secured credit card, you can begin rebuilding your credit. After that, you can open an unsecured card, like a low-interest card or a travel rewards card, and start taking advantage of the perks.
Annual Fees: When They’re Worth The Cost
Okay, yes, it might sound sketch that you may have to actually pay the credit card company for the privilege of getting the card. I mean, they already charge you late fees and interest, right? Now they want you to pay $100 or more just to put it in your wallet?
But look at it this way: you’ll get back at least that much in credit card perks and bonuses.
Credit card companies with an annual fee usually provide stellar rewards to their customers. For example, some airline miles cards will give you VIP access to exclusive lounges or comp your application fee for TSA Pre-Check or Global Entry. Some will offer credits at services such as Uber or Postmates — a great perk if you use those apps. Other cash-back cards pay you a cash bonus after you reach their spending threshold, as much as several hundred dollars, on top of the cash back rewards you earn. Plus, many cards will waive that fee the first you own the card. So you get all the benefits (and maybe some bonus points, too) before they ever charge you a fee.
So while it may seem expensive at first glance, chances are you’ll earn back every dollar of that annual fee and more, making rewards cards a smart financial decision. When you qualify for a credit card with an annual fee, you can be fairly certain that it will pay off.
The Interest Rate on Your First Credit Card
One thing you need to know about your first credit card is the interest rate it carries. That will vary by card and by your own personal credit rating. The interest rate will affect how much you pay over time for the purchases you make, if you don’t pay them off before the grace period ends.
When you charge a purchase to your credit card, you can pay that balance due by the due date, or you can pay the minimum and carry a balance forward, or you can pay any amount in between. However, anything less than the full payment will accrue interest for as long as you carry a balance. Interest rates on credit cards, what is generally called APR (annual percentage rate), are often in the 15% to 25% range, so you can see how that can get expensive. If you carry a balance of, say, $1,000, you could pay $250 in interest after a year. So it pays to do two things: search for a card with a low interest rate, and pay all or as much of your balance as you possibly can.
The good news is that your first credit card is going to be an excellent way to build your credit score, and the higher your credit score, the better rates you’re going to qualify for down the line.