- Credit card lenders consider different criteria when reviewing applications, with none more important than the credit score.
- Understanding basic credit card terms, such as the Annual Percentage Rate, will go a long way toward ensuring that you use your card properly and stay out of debt.
- If you aren’t prepared, credit card debt can spiral out of hand quickly. Fortunately, smart habits like paying the balance on time can go a long way toward keeping you out of debt.
No matter if you’re someone looking to take advantage of perks like a cash-back rewards program or someone who’s looking to build credit, you may be interested in learning how to get a credit card. You’re not alone with this thought — according to the Boston Federal Reserve, more than 75% of Americans have at least one credit card.
Below, you’ll find everything you need to know about how to get a credit card. We’ll go in-depth to describe what it takes to qualify. We’ll then discuss the smart way to use your credit card and build excellent credit. After reading this guide, you’ll feel much more knowledgeable submitting a credit card application and securing this new line of credit.
What Do You Need to Qualify for a Credit Card?
To better understand how to get a credit card, you must first understand how credit card applications work. Roughly 290 million American adults have a credit score. A credit score is a number between 300 and 850 that lenders use to determine how likely you are to repay debt. FICO and VantageScore are the two organizations evaluate the creditworthiness of individuals and interpret these into scores:
- Exceptional Credit = 800-850
- Very Good Credit = 740-799
- Good Credit = 670-739
- Fair Credit = 580-669
- Very Poor Credit = 300-579
- Excellent Credit = 781-850
- Good Credit = 661-780
- Fair Credit = 601-660
- Poor Credit = 500-600
- Very Poor Credit = 300-499
FICO and VantageScore rely on information found in your credit report to come up with these scores. There are three major credit bureaus responsible for maintaining credit reports:
Your credit history contains a substantial amount of information including how long you’ve had credit, the types of credit you’ve had, your payment history, your credit limits, and the percentage of each limit that you use, how much debt you carry, and how many hard inquiries lenders have made on your report.
The application process for a new credit card begins with you filling out a form with your personal information. Then, the credit card issuer, acting as a lender, will run your information through the various credit bureaus. If the issuer deems that you’re an excellent fit, you’ll get approved.
Regardless of your credit history, not everyone may be eligible to apply for a credit card. You generally need to be at least 21 years old to apply for your first credit card. If you’re between the ages of 18 and 21, you can apply for a card with your parent’s permission or by demonstrating a verifiable source of income that shows you’re capable of repaying your obligations. All individuals are required to demonstrate a source of income when submitting their application.
You’ll also need to provide a Social Security number. Your Social Security number is what links your credit report to you, allowing credit card companies to see your credit score and payment history. You won’t be able to apply for a credit card without one. You must also provide a physical address. P.O. boxes do not suffice.
You must provide accurate information when applying for a credit card. Failure to do so will, at best, delay the odds of your card being approved. At worst, you’d put yourself in jeopardy of committing fraud. Providing accurate information that matches the information found on your credit report provides you with the best chance of being approved.
Getting Your First Credit Card
The odds of being approved for a credit card depend on the company’s lending criteria. Each card has different standards. For instance, a credit card company may offer an introductory card for those with bad credit or limited credit history (do your research before opening a credit card with no credit). Or, they may offer a card with rich rewards for those with excellent credit.
If a credit card company has looser restrictions on approval, it will often include stipulations to account for bad credit. For instance, lenders may offer a higher interest rate to account for your poor credit. Your credit line — your maximum available credit — could be minimal. Lenders may require you to put a cash deposit down before receiving what’s called a “secured credit card.” Your deposit dictates your credit limit. For example, if you put down a $500 deposit, you’ll have a $500 credit limit.
Some of these requirements are “hard” requirements, while others are a bit looser. Rewards cards, for example, often require a minimum credit score for approval. Introductory cards, on the other hand, may have a less-strict limit because lenders can adjust the card terms instead.
Understanding the Basics of How to Get a Credit Card
Before applying for a credit card, it’s crucial that you know the basics of how credit cards work.
First off, credit cards and debit cards are different. A debit card links directly to your bank account. When you use a debit card, you use money that’s already in the account. You pay the merchant instantly with these funds.
A credit card, on the other hand, is similar to a loan. A credit card allows you to “purchase now, pay later.” The merchant receives immediate payment, but the funds come from the credit card lender. The lender then bills you at the end of the month for what you’ve spent. You must pay your balance — or at least a portion of it, depending on your terms — within 30 days. If you only pay a portion of your balance, pay past the grace period or make late payments, you’ll be charged interest on your balance.
So, why use a credit card? For one, they allow you to build credit. A credit score is useful for things like taking out an auto loan or a mortgage. Additionally, many credit cards come with perks, such as airline or cash rewards. Lastly, credit cards provide you with access to funds that you may not currently have. But, getting a credit card for this reason could be risky, as many people might view the card as “free money,” and spend more than they’re reasonably able to repay in full each month. There are also some key terms that you’ll come across when comparing credit card offers:
- Annual Fees: Some credit card companies may charge you a flat rate each year to use the card. This is common in high-end rewards credit cards.
- Annual Percentage Rate: The Annual Percentage Rate, or APR, is the total cost of the card per year, expressed in percentage form. It factors things such as the interest rate and fees.
- Balance: This is the outstanding amount that you owe the credit card company, including both principal and any compounded interest (more on this below).
- Billing Cycle: Your credit card company will break the year up into monthly installments. When you receive a statement, it represents the charges, balances, and minimum payment for one billing cycle.
- Grace Period: This is the amount of time that a credit card company will allow you to pay your balance with no interest charged.
- Minimum Payment: This is the amount that you’re required to pay each month to your credit card company.
- Late Fee: This is the additional fee that you’ll owe if you don’t make the minimum payment on time.
Credit Card Tips
If you’re ready to choose a credit card, make sure that you’ve thought everything through. Below, you’ll find some of our tips and things to consider before submitting your application.
Do Your Homework
There are different types of credit cards available. You’ll find that there student credit cards that can help you build credit, receive cash back, and increase your financial knowledge by providing you with educational resources. Perhaps you carry a lot of debt on high-interest rate cards and are looking for a card with a low interest rate and minimal balance transfer fees. Or, maybe you’re someone who travels frequently and need a card with no foreign transaction fees.
Every time a lender looks at your credit report, your credit score will take a hit. You don’t want to find yourself in a situation where you’re applying aimlessly or unnecessarily for cards, only to be rejected continually. Do your research beforehand. Make sure your credit score meets minimum thresholds and that you genuinely want the card for which you’re applying. Read the card terms before applying, even if it’s for one of the best credit cards available.
Where Credit Card Interest Can Go Wrong
Learn how to calculate credit card interest and how interest accumulates on the balance, even if you make minimum payments. Compounding interest is interest that builds on top of itself, meaning that you’re charged interest on top of interest as it gets added to what you owe. If you’re not careful, this can snowball quickly.
Let’s take this compounding interest example. Let’s say you have an APR of 19.5%. You take your annual interest rate and convert it into a daily interest rate, which allows you to figure out the total amount of interest you’re paying. To figure out your daily rate, you’d divide your APR by 365 and get 0.0534%.
Now, let’s say you start with an unpaid credit card balance of $2,000. Each day, interest will be charged on your unpaid balance, or about $1.07 on the first day using our 19.5% example above. On day two, your balance increases to $2,001.07. Interest will then be charged on this new balance the following day. In a week’s time, your balance will be $2,007.49, and by the end of 30 days your balance will be $2,032.30. Each day your balance goes unpaid, you’ll be charged interest based on the previous day’s balance.
With this example, it’s easy to see how debt can snowball to an unmanageable amount quickly.
Consider Credit Card Utilization
Utilization is a ratio that compares your outstanding balance to your credit limit. For instance, if you have a $600 balance on a $2,000 limit, your credit utilization is 30%. A lower utilization rate is typically associated with higher credit scores, and it demonstrates spending restraint and fiscal responsibility. Aim to keep your credit utilization below 30% at any given time.
Apply for a Credit Card Today
If you’re ready to apply for your first credit card, you’re better prepared now with the knowledge of how credit cards work and what lenders are looking for. Competition for credit card customers is fierce, so you won’t have much problem finding a company willing to do so, even with poor credit. What’s tricky is staying out of trouble with credit card debt. Practicing sound financial habits will go a long way toward helping you stay out of debt and build your credit score.