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Getting your first credit card is a financial rite of passage. That first card opens up a world of digital spending, convenience, and, yes, credit card rewards.
But opening up your first credit card account isn't all contactless payments and cash back; if you don't use that card responsibly, you could do long-term damage to your fledgling credit history.
Of course, you're not the only one taking on risk with your first credit card. As a brand-new credit user, you're an unknown element, so the credit card companies can't be sure you'll pay back what you owe. On the bright side, credit card issuers want you to build credit, so options for a first card abound.
Although plenty of people are wary of credit cards because of the potential for abuse, avoiding credit entirely can also come with risks.
Establishing your credit report and building a credit history is much more difficult without a credit card. If you don't have a credit history and you want to borrow money in the future -- say, for an auto loan or mortgage -- you'll likely have a difficult time getting approved without a qualified cosigner.
Credit cards are also the safest way to make online purchases, and are less costly than cash or debit cards if lost or stolen. Legally, you're only liable for up to $50 in unauthorized credit card purchases, and most credit card companies offer their cardholders $0 fraud liability policies.
Then there are the rewards. When you use cash or a debit card, you remove the risk of incurring debt, but you also miss out on earning cash back, rewards points, and travel miles. As long as you pay your balance in full every month to avoid interest fees, credit card rewards can result in some big savings.
So now you understand why credit cards are useful. But how do you actually get your first credit card? You'll need to meet a few basic criteria to qualify for most credit cards:
The first and last points do require some extra attention. You can qualify for your own credit card at 18 if you have an independent source of income. However, allowances or gifts won't count as income. If you don't have your own verifiable income, you'll need to have a cosigner over the age of 21 with good credit or be over 21 yourself.
Provided you meet these basic requirements, you can apply for your first credit card.
There are two main types of credit cards available to those without a credit history: student credit cards and secured credit cards. We'll discuss each below.
Student credit cards are marketed toward college students who don't yet have an established credit history, and they are some of the easiest cards to get. That doesn't mean student cards skimp on perks, though. Credit card issuers want you as a long-term customer, so they want your first credit card experience to be positive.
Most student credit cards don't charge annual fees, and many offer rewards. In fact, many student credit cards are student-centered versions of regular consumer cards, with rewards to match. For example, the Discover it® Student Cash Back offers the same rewards as the regular Discover it® Cash Back, including the sign-up bonus that matches the cash back you earn in the first year.
The main downside to student cards -- or any other type of first credit card, really -- is that you'll likely have a very low credit limit. This means you'll want to keep your balances low to avoid a high utilization rate -- the ratio of how much credit you use versus how much credit you have available -- as this could hurt your budding credit scores (more on utilization below).
if you've been a responsible payer, many banks will upgrade your student credit card to one of its regular rewards credit cards when you graduate from college. This typically unlocks a credit limit increase, and can mean larger rewards.
If your bank doesn't offer to upgrade you, you can request an upgrade or apply for a new rewards credit card on your own. So long as your first credit card doesn't have an annual fee, just leave it open -- that will continue building your credit history.
If you're not a student and have no credit history, a secured credit card is the way to go for your first credit card. These cards are so named because they require a (fully refundable) security deposit to open and maintain the account.
Though deposit requirements vary, most secured cards require a minimum of $300 to $500. Since the credit limit of your secured credit card typically equals your deposit amount, it may be beneficial to put down a larger deposit to get a higher credit limit. If you default on your credit card balance, the card issuer can close your account and use your deposit to pay off your outstanding debt.
Many secured credit cards come without annual fees, and some secured cards even offer modest purchase rewards. Even if you don't find a card with rewards, however, don't despair. Secured cards are intended to build your credit history, not your points balance; once you're established, you can seek better rewards.
Or those rewards may come to you. Some credit card issuers automatically upgrade your secured card to an unsecured card once your credit qualifies for the unsecured option. Whether your first credit card is upgraded or you cancel it in search of greener pastures, your security deposit is refunded to you once your secured card account is closed and your balance paid in full.
The current credit card market is glutted with options, even for first-time cardholders. Here are a few things to keep in mind while looking for your first credit card:
In the process of choosing your first card, remember that it's just that: your first card. This isn't your forever card. Pick a card that helps you build credit responsibly without breaking the bank. Everything else is gravy.
A credit card can help you build a positive credit history that makes it easier to secure new loans or lines of credit in the future. But that's only if you use that new card wisely.
The single most important thing to do to keep your credit in good shape? Pay your credit card bills on time every single month. Late payments not only come with costly late fees, but if you fall more than 30 days behind, your credit score is in for some heavy damage -- especially when you only have limited credit history.
You don't necessarily have to pay off your entire credit card balance every month to avoid credit damage -- though you should. But you need to make at least the minimum required payment before your due date. A good way to make sure your account is always in good standing is to set up automatic payments, which, just as it sounds, automatically makes your minimum credit card payment every month.
But why is it better to pay your bill in full? Because any balance you carry past the end of your grace period starts to accrue interest fees. And those fees can get expensive, fast.
Carrying a balance on your credit card also raises your credit utilization ratio. As noted above, this is the ratio of how much credit card debt you have versus how much credit you have available (i.e., your credit limit). A utilization rate of more than 30% is considered a warning sign, and can decrease your credit score.
You'll also want to limit how often you apply for new credit. Every time you apply for a new credit card, the lender performs a hard credit inquiry. Each hard inquiry has a small negative impact on your credit scores, and too many hard inquiries in a short time can lead to more significant credit damage. It's a good idea to stick with just your first credit card for six months to a year to let your credit history grow.
There's a lot to understand when applying for your first credit card, but hopefully the above guide makes it a little easier. It'll probably be a while before you earn the lucrative rewards you might hope for, but with consistent, responsible use, you can build a solid credit history that opens up opportunities for better credit cards over time.
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