Four Things to Consider When Choosing Your First Credit Card

A credit card is both useful and dangerous. On the one hand, opening a credit card (essentially having a high-interest loan in your pocket) helps build a credit history, which will come in handy if you ever want to borrow money (to buy a house or a car, for example). example). And credit cards offer fraud protection you don’t get with cash or debit cards, with the added bonus of giving you flexibility to deal with financial emergencies.

All of these benefits explain why 82% of adults in the US (and 67% of people aged 18–29 ) have at least one card , and also explain why Americans collectively owe more than $1 trillion on these cards ( credit card interest may be a real bear to deal with ). This makes applying for your first credit card a pretty big decision because you want to get the benefits of a credit card while avoiding as many of the downsides as possible, but you’re also dealing with a fairly meager credit history that may limit your options. .

Limit your expectations

First of all, accept the fact that unless your parents started building your credit history when you were a child, you probably won’t get a high limit on your first credit card. The average first-time credit limit typically ranges from hundreds of dollars to several thousand, so you’re not going to be financing any big purchases or luxury trips with your first card (which you’ll be very happy about in the future, trust me).

You should think of your first credit card less as a source of money and more as a tool for establishing and building your credit history, especially if you don’t already have a credit score . If you don’t have a credit history (or a bad one), you may need to consider a secured credit card . A secured card requires you to make a deposit, which then becomes your credit limit—you’re essentially borrowing your own money. For example, if you deposit $500 to open a secured card, your credit limit will be $500. Because you’re making a deposit, the risk to the bank is very low, allowing you to get a credit card despite any credit history or rating issues. Secured credit cards are used to establish or improve your credit so you can eventually upgrade to a more traditional card.

Research first

Do your research before signing up for anything. Get your credit reports —there are three major credit reports (TransUnion, Experian, and Equifax) and you should get them all (they’re free)—and see what’s there. If you’ve never had a credit card or loan before, there may be nothing there, and you may not even have a credit score. This is fine! Use these reports to ensure that you are not a victim of identity theft and that they do not contain incorrect, negative information that could affect your ability to get a credit card in the first place. If yes, take steps to fix it .

Once you’ve checked this, the next step is to research the credit cards you may qualify for. It’s vital that you don’t just reach out to the group to see what happens—too many inquiries on your credit history can hurt your chances right away. Instead, explore first. Experianoffers a service that collects your personal information and then creates a personalized list of credit card offers that can be a good starting point. But you can also just go to card sites and look at the Schumer box.

What is a Sumer box? Named after Senator Chuck Schumer, it provides an easy-to-read breakdown of credit card terms, including the annual percentage rate (APR), billing cycle, annual fees, and fees for other transactions such as cash withdrawals. Schumer boxes show up prominently on credit card statements, but you may have to do a little digging if you’re researching.

Considerations

So what are you looking for in your first credit card? Here are the key points to consider during your research:

• Avoid annual fees. Some credit cards charge an annual fee. Sometimes it ‘s worth it if you get a lot of useful perks and perks in return, but if you’re just starting out with credit cards, it’ll be hard to judge. It’s best to use cards that don’t charge fees unless you’re absolutely sure you’ll get your money’s worth.

• Look for low interest rates. The average annual interest rate charged on credit cards is currently approaching 25%. Generally speaking, if this is your first card and you have little or no credit history, you’ll likely be stuck at the higher end of this average, but that doesn’t mean you can’t find a good deal. Even if you don’t intend to carry a balance on your card, getting the lowest APR possible can save you money if you have an emergency payment that you can’t pay off right away.

  But don’t just look at the big fat APR number—it could be an “introductory APR” that only lasts for a short time. Dig through that Schumer box or other documentation and make sure your APR doesn’t skyrocket in a few months or a year. Otherwise, you will be in for a nasty shock.

• Check out the rewards. Many credit cards offer various rewards and benefits to entice people to sign up. Look for cards that offer rewards that are meaningful to you. If you love to travel, a card that offers airline points or other travel-related perks may be a better choice for you than a card that offers cash back on purchases. If you prefer the cash back option, check how much you get for things you buy regularly and find the card that offers the best deal for your actual shopping habits.

• Ensure acceptance. A credit card is just a piece of plastic unless merchants accept it, so make sure your first card will work where you need it. Safe choices are Visa and Mastercard , as they are accepted more or less everywhere on the planet. Other cards, such as American Express or Discover, are widely accepted in the US (both claim a 99% acceptance rate), but not so much around the world. If you must travel, choose a safe option.

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