By Megan Doyle | American Express Credit Intel Freelance Contributor
4 Min Read | December 20, 2019 in Cards
The time has come for you to get your first credit card. Congratulations! Credit cards offer a whole new world of possibilities. It’s exciting, but the seemingly endless options and pages upon pages of fine print might leave you feeling overwhelmed.
Here are five steps experts recommend to help you worry less and get on track to becoming a responsible first time credit cardholder.
Credit cards are essentially instant mini loans that you can use to pay for stuff. Credit cards can help you build credit history and rack up rewards like cash-back bonuses, airline miles, or points.
But despite a credit card’s benefits, it’s important for first time credit cardholders to understand that a credit card isn’t a source of free money. You must pay back every purchase. And if you don’t pay off your balance in full each month, the remaining debt usually starts to accrue interest—which can quickly spiral out of control if you’re not careful.
Choosing the right credit card for a beginner might seem like a daunting task, given the wide range of available card options, each with its own features and specifications. Ultimately, the “best” credit card choice will depend on your financial situation and needs, so it’s important to look at a card’s rates, fees, and benefits to make sure that card aligns with your spending habits.
In other words, that fancy travel card with airport lounge access—and a $400 annual fee—might not be the best credit card for someone simply looking to establish credit history and earn some rewards.
According to experts, there are two features first time credit cardholders should look for:1
All credit cards will have a card member agreement that provides detailed terms and conditions. These agreements usually list your card’s APR, annual fee, any other associated fees, rewards and bonus criteria, restrictions, and more.2
There’s a lot to take in. Here are a few terms that every first time credit cardholder should know:3
There are a few factors that will influence how easy—or difficult—it may be for you to become a first time credit cardholder. For example, federal law dictates you must be 21 or provide proof of independent income to get a credit card without a cosigner.4 Credit history also plays a role in what kind of credit card you can get. But if you don’t have credit history, don’t fret. There are plenty of credit cards directed towards people with little to no credit history.
Another option is to become an authorized user on someone else’s account.5 A parent or older sibling, for instance, could add you to their account, and the card company would send you a credit card with your name on it. However, authorized users aren’t legally obligated to pay the bill, so it may not have that big an impact on building your own credit history. Still, it can be a great way to get your feet wet and learn about responsible credit card use.
When you find the best first time credit card for your needs, you should be able to apply online. You might need to supply your driver’s license and social security number, phone number, and other information depending on the application.
For a first time credit cardholder, it can be important to remember that credit cards come with serious responsibility and real financial risk. With the rate that interest can accrue, debt can quickly get out hand. And, late payments can end up damaging your credit history. But if you treat your card like cash and use it responsibly, you can build up rewards and establish a good credit history, which can lead to greater financial opportunities in the future.
Here are some experts’ suggestions for using your credit card responsibly:6
Getting your first credit card might seem daunting, but proper preparation and research can help you determine the right card for your financial needs, what to expect when you apply, and how to use your card responsibly.
2 “A Beginner’s Guide to Using a Credit Card,” Magnify Money
3 “Credit card contract definitions,” Consumer Financial Protection Bureau
4 Credit Card Accountability Responsibility And Disclosure Act Of 2009, Federal Trade Commission
5 “Will Authorized User Status Help You Build Credit?,” Nerdwallet
6 “A Beginner’s Guide to Using a Credit Card,” Magnify Money