Getting Your First Credit Card: What You Need to Know

When getting your first credit card, consider factors such as the card’s annual fees, interest rates, rewards or benefits, and credit limit. Choose a card that aligns with your financial goals and spending habits, and make sure to understand the terms and conditions, including the consequences of late payments or carrying a balance. Additionally, aim to use the card responsibly to build positive credit history while avoiding overspending and accumulating debt.

With so many credit cards on the market, getting your first card can be overwhelming. What type of card do you need? How often should you use the card? Is it possible to have a credit card without racking up large amounts of debt you can’t repay?

Keep reading for answers to these frequently asked questions about getting and using a credit card for the first time.

What Is a Credit Card?

A credit card is a type of revolving account that allows you to spend up to a preset limit. Every month, the issuer calculates your minimum payment due based on your recent activity.

One of the main differences between a credit card and a loan is that loans have a fixed number of payments. With a credit card, you can keep making purchases until you reach your preset spending limit, and each time you make a payment, it frees up some of your available credit. This allows you to keep using the line of credit over to purchase goods and services over and over.

Types of Credit Cards

Before you apply for your first credit card, make sure you understand the differences between secured and unsecured credit. If you want to open a secured credit card, you’ll have to make a deposit. The issuer uses that deposit to set your credit limit. For example, if you deposit $500, you should start out with a limit of $500.

One of the biggest advantages of opening a secured credit card is that you can’t overspend. If you don’t pay back the money you borrowed, the issuer can close your account and keep the deposit.

An unsecured credit card doesn’t require a deposit, so the issuer sets your spending limit based on your income and credit history. If you don’t repay what you borrowed, the company can send your account to collections or do a charge-off, both of which would have a negative impact on your credit health.

Pros and Cons of Getting a Credit Card

Like any financial product, credit cards have several pros and cons. Review them carefully before you decide to apply for your first credit card.

Advantages of Credit Cards

The main advantage of having a credit card is that it gives you extra purchasing power. For example, if you don’t have quite enough money saved for your auto insurance premium, you can use a credit card to make your payment.

Having a credit card also helps build a strong credit profile, provided you use the card wisely. Your credit score is based on several factors, such as your payment history and the number of credit accounts you have open. When you open a credit card, you have an opportunity to demonstrate responsible financial behavior, which could improve your credit.

Credit cards also have these benefits:

Fraud protection. Credit cards have several features designed to guard against fraud. Additionally, it’s easier to deal with fraudulent transactions on a credit card than on a debit card. If you use a debit card, the fraudulent transaction ties up some of your money until you can convince the bank to issue a provisional credit. When you use credit cards, you’re using the bank’s money, so none of your money is ever at risk.
Rewards. Many companies offer credit cards that give you points, miles, cash back, and other perks. Rewards credit cards let you earn valuable benefits based on your everyday spending habits. For example, if you enjoy dining out, you may want to look for a credit card that offers extra cash back on restaurant purchases.
Wide acceptance. Thousands of merchants accept credit cards, so you don’t have to worry about carrying cash or coming up with another form of payment. Carrying a credit card may even help you avoid having a hold put on your funds when you rent a car or book a hotel room.

Disadvantages of Credit Cards

One of the biggest disadvantages of using a credit card is that it’s easy to overspend, especially if you have a high limit. To reap the benefits of using a credit card without the stress of worrying about your minimum payment, charge only what you can afford to pay in full each month.

Many credit cards also have high interest rates. If you don’t pay your balance in full every month, you’ll have to pay interest on all purchases, cash advances, and balance transfers. Interest charges add up quickly, making it difficult to pay off your balance.

Although credit cards can be very beneficial, you need to use them responsibly. Late payments, missed payments, and other credit mishaps can hurt your credit for many years to come.

How to Choose Your First Credit Card

Before you apply for your first credit card, take time to check your credit score and report. If you know your credit, it will be easier to find a credit card company willing to issue a card to someone with your credit profile. If you have poor credit, you may need to open a secured card or accept a credit card with a low limit before you can qualify for better cards.

When you’re ready to apply, look for a card that fits your needs. If your goal is to build credit, search for a card with automatic credit line reviews or other features designed to help users improve their financial situations. If you travel frequently, consider getting a rewards credit card to help you earn cash back or bonus points.

Now you’re ready to apply for a card. When you fill out the application, you’ll need to provide your name, contact details, and information about your financial situation. If you aren’t approved, you’ll receive a letter explaining the reason for denial.

Tips for Using Your Credit Card Wisely

To avoid the drawbacks associated with credit cards, follow these tips:

Make on-time payments. Payment history has a big impact on your credit health. To build a strong credit profile, pay your bill on time each month.
Pay more than the minimum. If you only pay the minimum amount due, it may take several years to pay your balance in full. Avoid high interest charges by paying more than the minimum due each month.
Don’t go over your limit. Going over your limit increases your credit utilization ratio, which is a red flag to lenders. Many companies also charge over-limit fees that make exceeding your limit expensive, so try to avoid doing this.
Limit your applications: Every time you apply for a credit card, the issuer checks your credit report, resulting in a hard inquiry. Lenders see many hard inquiries in a short amount of time as a sign that you may be in financial trouble, so it’s best to limit the number of inquiries on your record.

You can visit Credit.com today to get started on your credit card journey by comparing different cards, checking your credit score and credit report card, and learning more about how to manage your finances responsibly.