- Determine if now is the right time to get your first credit card by looking at your credit history, spending habits, budget, grades, and general need for a card.
- Make sure your first credit card has a fair APR, reports to the major bureaus, and has a credit limit you can manage.
- Always be responsible with your spending, don’t miss minimum payments, pay as much as possible every month. Monitor your credit score to make sure your credit health is always positive.
Your first car. Your first girlfriend or boyfriend. Your first kiss. Life is full of firsts, but one first that often gets overlooked is your first credit card.
There’s a lot riding on your first credit card. You likely have a fairly new credit history, and your first card can set you up for massive success, or land you in dire straits. To make sure you set yourself up for first-time cardholder success, there are some basics to cover.
When Should You Get Your First Credit Card?
This question doesn’t have a clear cut “now” or “later” answer, so consider the following to decide if you’re ready for your first credit card or not.
Where You Are in School
If you’re nearing your high school graduation, the temptation to get a credit card is likely strong. You’re also likely receiving tons of mailers offering you credit cards, which doesn’t help with that temptation.
While there’s always a chance you can qualify for a card now, you’ll likely get a high interest rate. To avoid this, it’s best you wait until you’re done with school and able to work and have a higher proof of income. This can result in you receiving a better rate or at least help you secure other methods to build your credit, like a loan or secured card. (More on those later.)
If you’re planning on going to college, you may also qualify for a student credit card from a local credit union once you’re a full-time college student. Again, this makes waiting until you’ve graduated from high school ideal.
Your Credit History
If you have no credit, obtaining a credit card can be difficult, but not impossible. If you have no credit history, consider looking at secured credit cards, which require a security deposit that acts as your card maximum.
You also might want to consider taking out a personal loan (with a cosigner if necessary) that will allow you to make regular payments and build some good credit. An upside to loans is that you can often get a lower interest rate than with a card, making them a better deal. A positive payment history on your loans will also help your overall credit profile and can boost your score to a point where you can get an entry-level card.
There are a number of additional strategies that can help you build credit. For more information read our guide on building credit without a credit card. While it may take time to boost your credit score, you could ultimately qualify for a credit card with a lower balance.
Your Spending Habits
Two out of three Americans don’t have a budget, so if this is you, don’t feel bad. But consider having a budget in place before you even think about a credit card.
Before getting your first card you also need to take a look at your spending habits. Do you tend to have late fees on your utilities or other monthly services? Are you often living paycheck to paycheck? If your bank account is often close to bottoming out, a credit card might be a bad idea for now.
You want to be sure you can handle the responsibility of a card before you start filling out credit card applications. Once you have a card, the temptation to overspend will be present, which can result in a pit of debt that’s difficult to climb out of.
A budget can help you establish and stick with responsible spending habits. Secure a debit card and become comfortable with budgeting. Also, try to build up a savings account before opening a line of credit, as this will not only be proof that your budget is going well but also help you in the event of an emergency.
Your Grades
No, you don’t need an A+ on your transcript to get a credit card. But banks and credit card companies see great grades as indicators of someone who could handle the responsibility of a credit card. As an added bonus, some cards will offer student rewards, especially if it’s a student credit card. Student cards often be found through local credit unions and some large banks as well.
Your Need for a Card
Ask yourself if you need a credit card. If you’re generally great with money and you have new purchases coming up, especially larger ones, then a card with a rewards program could make sense.
Similarly, if you’re planning on traveling out of the United States and you want the fraud liability that comes with a card, it might be a good time to consider one. (Keep in mind there can be foreign transaction fees on some cards.) If you simply want a card, make sure you have a good history with spending and won’t use your card for impulse purchases that land you in hot water.
Determining if it’s time for a credit card or not isn’t a science, but the above considerations should help you get a good idea of whether or not it’s time for you to think about a card.
Things to Look for in Your First Credit Card
Now that you know if it’s time for your first credit card, it’s time to think about what makes a great first card for you. No two cards are equal, and no two people will have the exact wants or needs when it comes to credit. Still, think about the following to determine what the best credit card looks like for you:
- Little or no annual fee: As a new credit card holder, the last thing you want to worry about is a large annual fee. Annual fees are often attached to higher end cards intended to be used by big spenders, but even some more modest cards will have fees. Make sure you read the fine print when looking at any card before you hit the “Apply Now” button. Ideally you want your first card to have no annual fee at all.
- Manageable credit limit: While you likely won’t be offered a card with a $20,000 limit, make sure you don’t agree to a limit that’s much higher than what you need. Getting a card with a much higher maximum than what you need can lead to a revolving cycle of debt, which can be difficult to climb out of. Instead, look for a manageable maximum that won’t land you in any hot water. Also, make sure to ask about the quarterly maximum, as some cards will have a quarterly maximum as well as the line maximum.
- Low interest rate: This one can be tricky, as many cards will offer a great intro APR and then jack the rates up after your first year. Again, read the fine print and make sure your interest rate isn’t going to increase after you reach the end of your first year.
- Reports to major credit bureaus: There are several primary credit bureaus — Equifax, TransUnion, and Experian PLC — each of which can influence your FICO score or VantageScore. When you look at credit cards, make sure the one you go with reports to as many of those major bureaus as possible, as failing to report to them can result in your hard work with your credit not helping your score improve.
- A suitable rewards card: There are a number of rewards cards available. Some will offer travel rewards, while others might offer cash back rewards or points at gas stations. If you don’t have a particular reward type you’re interested in, think about getting a cash rewards credit card. These will allow you to save up your points and redeem them for money off your statement or cash in your checking account.
Tips on Using Your First Credit Card
Once you have your card account opened, you’ll need to know how to get the most out of your card without getting into any debt. Just like maintaining good grades, maintaining a credit card and building a healthy credit report involves persistence. The following tips will help you get on the right track with your card and stay there.
- Practice responsible use: Credit cards can be a huge benefit when used with care. Make sure you’re watching your spending, staying well below your credit limit, and paying on time. Interest can pile up quickly, and being watchful from the beginning is the best way to avoid it.
- Never miss a minimum payment: Minimum payments won’t get your card paid off, but they will prevent you from being hit with fees on top of interest. If you can only afford a minimum payment, pay it. No matter what, don’t let your minimum payment go unchecked, as late fees will go onto your card, which then accrues more interest.
- Make larger than necessary monthly payments: Ideally you want to pay more than you have to on your card. By aggressively paying off your card you can keep it as close to zero as possible, which reduces the interest charges you pay and can help your credit score climb. This can result in access to better cards or a higher credit limit.
- Monitor your credit score: Make sure to regularly check your credit score. There are free services that won’t affect your credit score. Use these tools to make sure your score is always climbing and trending in the right direction. If your score drops, determine why and address it as quickly as possible.
- Take advantage of your credit card offers: If you have a rewards card, make sure you’re taking advantage of what it offers. For example, if your card offers you more points on certain days at certain venues, try to plan your week around that schedule so you can maximize your money back.
Your First Step Into Personal Finance
Your first credit card is a big step, but it’s the first of many even bigger steps. Proper credit card usage can help you budget for those other firsts: your house, your car, your wedding, your future. (Not to mention it helps drive your credit score into the range that allows for better terms on home loans, car loans, and beyond.)
Following credit card best practices is a great way to set yourself up for success. If you’re in doubt, waiting to move forward with a card can be a wise choice. At the end of the day, your financial future is already being built, so don’t rush into anything you aren’t sure of.
