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Getting your first credit card can be exciting and scary at the same time. You want to start earning rewards and building credit, but you also know credit card interest rates are high, and if you’re not careful, you could end up with debt that takes years to pay off.
That’s why you should understand what credit cards are and how they actually work before applying for your first one, says Danny Cieniewicz, certified financial planner at Hyperion Financial.
Here’s what you should know.
Why get a credit card?
Some people like the convenience, flexibility, and security of a credit card. Others use them to earn rewards for their spending.
But the primary reason people get credit cards is to establish credit. Having a credit card and using it smartly can help build a strong credit history. Solid credit can help you purchase a home, finance a car, or qualify for the best rates on the best credit cards and other loans.
Using a credit card responsibly and making payments on time shows you manage credit well. This positive payment history is recorded in your credit report and can improve your credit score, ultimately saving you money down the road if you have good credit.
Making sure you’re ready for a credit card
When you use a credit card, you’re essentially borrowing money from the issuer with the promise that you’ll pay it back later. This gives you the flexibility to pay off purchases over time, but can also lead to debt if you can’t pay your credit card balance in full each month, says Robin Snell, certified financial planner and owner of Nested Financial & Tax Planning.
Before you apply for a credit card, Snell recommends making sure you have your financial ducks in a row and consider the following:
- Your current debts: If you already have high-interest debts like personal loans, focus on reducing those debts first.
- Your income stability: Ensure you have a reliable source of income or savings to cover your credit card payments.
- Your payment discipline: Make an honest assessment of your ability to make timely payments. “If you tend to miss bill payments or have a history of late payments, a credit card might not be the best choice until you improve your financial habits,” says Snell.
- Your savings: While your credit card can cover you in case of unexpected expenses, it’s better to have an emergency fund in place before getting a credit card. A solid emergency fund “acts as a safety net in case of unexpected financial challenges or emergencies, so you don’t have to rely solely on credit,” says Snell.
Finding the right card for you
When you’re first building credit, you may have fewer card options.
Most credit cards are unsecured, and often come with better perks and rewards. Unsecured credit card issuers typically approve you based on your creditworthiness and income, and are, therefore, harder to qualify for if you have a low credit score or no credit history.
If you can’t get approved for an unsecured credit card, you can start with a secured credit card requiring a cash deposit as collateral.
Secured credit cards aren’t always ideal, but they can help you build credit by reporting your on-time payments to the credit bureaus. You can get your refundable security deposit back once you close or upgrade your account in good standing.
Some secured credit cards offer rewards, including the Bank of America® Unlimited Cash Rewards Secured Credit Card.
If you’re a college student, you may qualify for a student credit card with generally easier approvals and may come with rewards. Some popular student credit cards include the Quicksilver Secured from Capital One.
What you need to apply for a credit card
To apply for a credit card, you’ll need to provide some personal and financial information, including:
- Full name
- Address
- Phone number
- Date of birth
- Annual household income
- Rent/mortgage payment amount
- Social Security number
- Citizenship status
- Employment status
- Highest level of education completed
- Account number and bank routing number (if you’re applying for a secured card that requires a deposit)
4 steps to apply for a credit card
Here’s how to actually apply for a card:
- Gather the required information for the application. Get all the information you’ll need for your application, including details you may not know off-hand, like your Social Security number (SSN).
- Fill out the application. Try to be as accurate as possible, as it will make the approval process smoother.
- Read over the card’s terms and conditions. Consider the card’s interest rates and fees, along with other terms. “Pay attention to the grace period, late payment fees, minimum payments, and rewards programs,” Snell says.
- Submit your application. Once you’re sure your application is correct and you’ve read over everything, send in your application. Now it’s up to the issuer to determine whether you’re approved. Depending on the card, you may be approved instantly or will hear back in a couple of days.
How credit card approval works
Card issuers base your credit card approval (or denial) on many factors. While card issuers might say their cards are for people with specific credit profiles, they won’t tell you exactly what qualifications you need to be approved.
If this is your first credit card and you want to maximize your chances of getting approved, consider specific unsecured starter credit cards or secured credit cards that require a refundable cash deposit as collateral.
How to use your new credit card smartly
No matter which credit card you apply for, you’ll want to use it correctly. This means using it to boost your credit score, earn perks, and avoid debt. Good card habits include:
- Pay your balance in full each month. Credit card interest rates are typically very high. To avoid interest-related charges, strive to pay your credit card balance in full every single month.
- Use a monthly budget. Everyone should create a monthly budget or spending plan before getting a credit card, says Cieniewicz. This helps you determine which purchases you can charge to your card and how much extra cash flow you have each month.
- Earn rewards for spending. Many credit cards offer rewards programs where you can earn points, miles, or cash back on your purchases. “By using your credit card for regular expenses and paying off the balance each month, you can accumulate rewards and enjoy perks like discounted travel, gift cards, or cash rebates,” Snell says.
- Treat your credit with care. Snell points out that responsible credit card use can help you build credit quickly and improve your credit score. This means making timely payments and keeping your credit utilization low to demonstrate your creditworthiness.
Bottom line
Getting a first credit card can be an important step to building your credit in the future. Your best bet is to approach the process with a plan that lets you benefit from credit without getting into debt. It’s wise to use your card only for purchases you can afford to pay off each month and start building positive credit habits from day one.
After all, your credit score matters, whether you like it or not.
“A good credit score opens doors to better loan terms, lower interest rates, and higher credit limits,” says Snell. “It can also enhance your chances of getting approved for other financial products like mortgages or car loans.”
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.