Skip to content Skip to sidebar Skip to footer

11 Things to Know Before Getting Your First Credit Card

Understanding the fundamentals will save you time, money, and aggravation while putting you on the road to good credit.

Having your first credit card is a significant accomplishment — and a significant change. You may already have a general understanding of how credit cards work and how to responsibly use one, but the devil is in the details. Before you jump in, learn the ropes. It will save you money and help you develop good credit faster.

1. The best credit cards aren’t for beginners

You won't be eligible to apply for the most valuable credit cards if you're new to credit, such as those with generous rewards and benefits, large sign-up bonuses, or lengthy 0% interest periods. Only applicants with decent or outstanding credit (scores of 690+) and longer credit histories that meet certain income criteria are eligible for these top-tier items.

For your first credit card, you'll most likely need to start tiny, with a product designed for people with little or no credit history. However, it's not all bad news: many of these cards offer good incentives and don't charge annual fees. Consider the following options:
  • 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 tools.

2. A security deposit makes a credit card easier to get

Try a secured credit card if you're having trouble getting approved for your first credit card, claim that you have no credit at all. Secured credit cards are intended for people who have low or no credit. You'll need to make a cash deposit to start your account. In most situations, your credit cap is equal to your deposit. Depending on the card, the minimum deposit ranges from $200 to $500. Most secured cards allow you to raise your deposit to increase your credit line. If you fall behind on your payments, you will lose your deposit. You can build good credit in a matter of months if you always make on-time payments and spend well below the card's cap.

Your issuer can then upgrade the account to a standard unsecured card, or you can apply for an unsecured card while holding the secured card open. Your deposit will be refunded in this case.

Prepaid debit cards are not the same as secured credit cards. You load money into a prepaid debit card, and transactions are deducted from the balance. This card use has no impact on your credit score. You'll have to make regular credit card payments for secured credit cards because transactions aren't deducted from your security deposit, and card behavior does affect your credit.

3. Your first credit card can build your credit — or ruin it

One of the key motives for obtaining your first credit card is to increase your credit score. It can, however, have the opposite effect if you're not careful. It all depends on your actions. Your credit card issuer will report your credit card activity to credit bureaus once a month. Credit bureaus are the organizations that collect the credit reports that are used to determine the credit scores. You will find out how your payments were made on time and how much of your usable credit you used in the study. Late payments are inconvenient. It's not a good idea to max out your card.

Pay in full and on time every month, and keep well below your credit limit, to ensure that your credit card usage benefits as much as possible. (A reasonable rule of thumb is to keep your balance below 30% of your total credit limit at all times.) You can also keep track of your credit ratings and see how far you've come. 

4. You can see the rates and fees before applying

Federal legislation requires credit card issuers to make such terms, such as interest rates and fees, publicly available before you apply. These are listed in a table known as a Schumer box, which can be found on a credit card's application page online (look for a link labeled "Rates and fees," "Pricing and conditions," or anything similar) or on a slip enclosed with paper applications. The following cards are included in the Schumer box:

Annual fee, or what it charges cardholders on a yearly basis.

APR, or annual percentage rates. The interest rate you'll pay on balances carried over from month to month is this. Purchases, balance transfers (debts transferred from other accounts to the card), and cash advances (cash withdrawn with the card, normally at an ATM) all have different interest rates on certain cards. Some, but not all, credit cards have interest APRs that kick in 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, some details will be withheld until after you have submitted your application. For example, you won't know your credit card limit until your application is accepted in most cases.

5. Credit card fees are avoidable

Even if you're new to credit, there are ways to avoid credit card fees:

Plenty of excellent starter cards, including many secured cards, don’t charge annual fees.

Late fees aren't an issue if you pay on time.

If you don't plan on using the card to make transactions outside of the United States, international transaction fees are irrelevant — and some issuers don't charge foreign transaction fees at all. If you never make balance transfers or cash advances, the fees associated with these transactions are irrelevant. Over-limit penalties, which are paid when you go over your credit limit, are almost non-existent. Issuers can't charge them unless you want over-limit insurance (when the issuer pays for charges that exceed your limit), and even then, you can stop them by remaining under your limit.

6. Interest is completely avoidable, too

Speaking of avoidable expenses, no matter how high your credit card APR is, as long as you pay your credit card bill in full every month, you won't have to pay any interest. This is due to the grace period on your credit card.

Simply put, interest will not begin to accrue on new transactions until the next due date after you have paid your bill in full. If you pay the next month's bill in full, no interest will be paid, assuming you only use your card for transactions. If you keep it up, you'll never have to pay interest.

However, if you don't pay your bill in full — that is, if you carry a portion of your balance over to the next month — then not only will you pay interest on that carried balance, but interest will begin accruing on new purchases immediately.

7. You can — and should! — pay more than the minimum

Your minimum payment due, or the least amount you need to pay to keep your account in good standing, is prominently displayed on credit card statements. That can be perplexing. “You should pay the full sum, but you could also get away with paying this much smaller amount,” it could seem like a friendly suggestion. a large number! ” In fact, paying less now means paying a lot more later. The bare minimum normally only covers the previous month's interest and fees (if any), as well as a small portion of the underlying balance. As a result, paying just the minimum on your credit card balance won't make much of a difference. Often, you're treading water. If you keep making transactions on the card, you could end up with an out-of-control balance.

8. Paying late comes at a high cost

Missing a deadline can rapidly become costly. Depending on how far behind on your payments you are, you can face the following consequences:

Fees for late payments. These fees' legal limits are adjusted on an annual basis. However, the first offense usually costs well over $20, and subsequent offenses will cost up to $40.

APRs with a penalty. The majority of credit cards no longer have penalty APRs, but a few still do. When you pay late, a penalty APR kicks in, which can automatically raise the interest rate to 30% or more on new purchases. If you miss a payment by more than 60 days, the interest APR will be added to your remaining balance.

Your credit will be harmed. Your credit will not be harmed if you pay a day  late. However, if you pay 30 days or more late, the payment will be reported as late on your credit reports, adversely affecting your credit score. Set up automatic transfers from your bank account if necessary. If you're concerned about going overdrawn, mark your due dates on a calendar as a reminder.

9. Getting too close to your limit can sink your credit score

Your credit utilization ratio is the amount of available credit that you use. This has a huge effect on your credit scores. Your credit scores will suffer if your utilization ratio rises too high — for example, if you have a balance of $1,500 on a card with a $2,000 cap. Your credit utilization ratio should be as low as possible. To maintain a good ranking, strive to use less than 30% of your total limit at all times. That way, you'll know your balance won't be too close to your cap when the issuer announces your account's status to the credit bureaus.

10. Dealing with credit card fraud isn’t as difficult as it sounds

If you've been putting off getting your first credit card because you're afraid of fraud, know that credit cards actually give you more protection against fraud than debit cards. If crooks get their hands on your debit card numbers, they can easily empty your bank account. You can report the scam to your bank and get your money back, but it will take time — and you might be low of cash in the meantime.

When the credit card information is used fraudulently, the money at stake is the credit card company's, not yours. You'll normally have plenty of time to appeal any fraudulent charges and have them removed from your remaining balance. You are not required to pay. Federal law restricts your liability for unauthorized credit card transactions, and credit card networks like Visa and Mastercard have zero-liability plans that reduce your liability to $0.

It's not difficult to receive a replacement passport. Your card will be revoked and a new one with a new number will be sent to you after you contact your issuer to report fraud on your account. No one will be able to use your old card number to make purchases.

11. If you’re rejected for a credit card, the issuer will tell you why

It's a bummer to be turned down for a credit card, however you will benefit from it. Federal legislation allows card issuers to give you an adverse action notice, which explains why they made their decision. An issuer might claim you were turned down because your income was too low or you didn't have enough credit history. This information could aid you in determining how to boost your chances of approval in the future.

Post a Comment for "11 Things to Know Before Getting Your First Credit Card"