Whether you’re just venturing out into the adult world for the first time or you’re ready to start managing your money with more sophisticated banking tools, getting your first credit card requires a bit of thought and preparation. With a credit card in your wallet, you can have a financial back up in case of an emergency, build your credit history, and enjoy insurance protection for things like rental cars and some purchases.
Before you start applying to every credit card offer you receive, find out the best strategies for choosing your first card. Learn how to qualify and where to search for one that’s designed for first-time applicants.
What You Need to Qualify for a Credit Card
Once you turn 18 years old, you may be eligible to receive your own credit card. But reaching that minimum age isn’t the only qualification you’ll need to meet. You also need to have verifiable income of your own.
Unless you’re getting a co-signer or becoming an authorized user on someone else’s account (more on those options shortly), you can’t count your parents’ income. You need to either get paid through a job or in some cases, receive child support or social security benefits.
Many creditors also require that you already have an existing credit history to get approved. This can be tricky if you’ve never had any other type of credit before. Many banks offer student credit cards with low limits to help you qualify more easily. You can use this card to start building your credit history, then get your balance increased once you’ve proved your ability to manage your payments.
Another option is to look for a secured credit card. You’ll need some cash in a savings account that serves as collateral in case you end up missing payments. That money isn’t actually used to make any payments. Instead, you’ll have to use additional funds to make your monthly payments and you’ll be charged interest on any balance you carry after your due date.
The benefit is that your on-time payments are reported to the credit bureaus. Once you reach a certain number of timely payments, you can usually upgrade to a card with better terms.
Preparing for Your New Responsibility
If you meet the basic qualifications to apply for a credit card, you should also do an internal check to make sure you’re ready for the responsibility that comes along with it. Skip this step and you could quickly accrue a huge amount of debt, not to mention some expensive interest and fees on top of your balance.
Getting a credit card isn’t the same thing as free money. In fact, you’ll definitely spend extra for whatever you charge if you don’t pay your balance in full each month but it’s easy to approach being a credit card holder in a responsible way. Simply make sure you understand the advantages and disadvantages of a credit card so you can use it as an effective tool to boost your financial future, rather than hinder it.
Advantages of Using a Credit Card
When you have a credit card for the first time, you’ll start to build your credit score, especially if you keep a low or zero balance and make all of your payments on time. This is a great stepping stone to getting other types of financing in your own name, like an auto loan or a mortgage. Keep up with your credit card payments and you’ll prove yourself to be creditworthy to future lenders.
You can also eventually improve your card terms, from a better APR to no annual fee. The next step is to bump up to more beneficial credit cards with a rewards program that earns you cash as you pay off your balances. Find a niche that works for you, such as travel rewards or cashback points.
Disadvantages of Using a Credit Card
Using your first credit card irresponsibly can cause a lot of damage. When you accrue a great deal of debt and don’t pay off your balance in full, your balance starts to grow as interest is charged. Since it’s your first credit card, you’ll probably have a fairly high APR. Pay attention to how much you’re spending so you don’t have an unpleasant surprise when you look at your next statement balance.
Making your payment on time each month is also crucial, even if it’s just the minimum amount. Late payments of more than 30 days are reported to the credit bureau and stay on your credit report for seven years. You may also be charged a late fee when you don’t pay on time, which can be as high as $25 or $35 per offense, depending on how frequently you pay late.
Where to Find a Credit Card for the First Time
Applying for too many credit cards in a short period can damage your credit score, so do a little planning before you start submitting applications. Here are some options to research as you find the right credit card.
Apply at a Local Bank or Credit Union
If you already have an account at a local bank or credit union, check to see if they offer credit cards for first-time applicants. College students can also apply at on-campus financial institutions that are more likely to have options available for your demographic. Alternatively, if you’re not eligible for a student card, local banks and credit unions are more likely to provide secured credit cards.
Explore Online Banks and Credit Card Companies
There are plenty of reputable banks that operate solely on the internet. The advantage of choosing them for your first credit card is that they often offer better terms because they have fewer costs compared to brick and mortar operations.
Become an Authorized User
When you’re not sure if you want to get your own credit card at first, or you don’t quite qualify yet, you can become an authorized user on someone else’s existing account. You’ll receive your own credit card and can make purchases just as if it was your own account. Just be upfront with cardholder about how much you can spend and how and when they expect to be repaid. Choosing this option can also start to build your credit history, although it won’t count as heavily as if you had your own card.
Get a Co-signor
If you really want your own credit card for the first time, another option is to apply with a co-signor. Not only does this help compensate for your lack of credit, but it also helps you qualify if you don’t have any income. Both positive and negative credit entries are included on both your credit report and your co-signers, making it important to manage your card responsibly. Otherwise, you’ll both suffer from damaged credit scores.
What to Do If Your Application is Denied
In the event your first credit card application is denied, there are a couple of things you can do to move forward. First, read the adverse action letter that’s mailed directly from the creditor. This should tell you why exactly why you were declined. The good news is that you can use this information to create a game plan for improvement. If your lack of credit history caused the denial, opt for an alternative credit card (like a secured one) and try again in six months.
You should also be able to get free copies of your credit report and credit score if your card application was denied. The creditor should automatically send you a copy of the credit scores they used to judge your application. You can also request your credit report for free within 60 days, regardless of the last time you received one for free. This can help you identify any other potential roadblocks, such as fraudulent accounts or negative entries.
It may take some time, but you can create a path towards approval when you have the right information. In the meantime, start bolstering your cash savings. This can help you qualify for a secured credit card and serve as an emergency fund that you can use instead of a card.
The Bottom Line
Getting your first credit card can open the door to a strong financial future. Strategically choose the cards to which you apply so you can improve your odds of approval. You’ll also avoid multiple credit inquiries appearing on your credit report and dragging down your score.
While a credit card certainly is a major financial responsibility, it’s also one that can help you out both in the short-term and the long-term. Today in your life it can be helpful to book travel, have a back-up plan for an unexpected emergency, or pay for work expenses you’ll later be reimbursed for. Later, you’ll be able to leverage your positive credit history to successfully get financing for future goals like homeownership.
With a little preparation and forethought, you’ll lay the groundwork for a successful credit card application even if it’s your first time.