Getting your first credit card, allows you to create a positive borrowing credit history which will impact you for the rest of your life. That first credit card helps demonstrate responsible repayment practices, delivers a good FICO score, and impacts the rate and monthly payment when it comes time to securing loans such as an auto loan or mortgage in the future.
While the long-term benefits of securing this type of revolving line of credit make them worthwhile, all cards are not created equal. There are plenty of campaigns designed to entice first time credit card borrowers to apply for unsuitable credit cards. Many come with higher-than-necessary interest rates and hidden fees. That’s why it’s important to consider the following tips about how to find the best first credit card.
First Credit Card Tip #1: Understand the Basics of Credit
Unlike a debit card, a credit card lets users borrow funds to pay for something now (known as paying on credit) with the trust that the funds will be paid back later on. Users are given a credit limit (known as max credit line) that's determined by factors such as your credit report, gross income, repayment history, length of credit history, and the number of credit accounts on your credit report. It's not uncommon for a credit limit to be higher than the actual availability of money you have in your account. This is why it's vital to learn and practice responsible spending habits, make full- and on-time payments, and not go over your spending limit.
Before you get started with your first credit card, it’s important to understand these common credit card terms and their definitions:
- Annual Fee: A yearly fee that's charged for the privilege of using a credit card.
- Annual Percentage Rate (APR): The interest rate that's charged if you carry a balance each month. Credit card rates are usually variable which means they fluctuate over time.
- Billing Cycle: The time period between two statement dates. Billing cycles typically last a month and the balance at the end of each one is what's due for that period.
- Credit Limit: The max amount you’re allowed to charge to your credit card.
- Grace Period: The period between your statement date and your due date, during which you can pay off your balance without interest charges. Not all credit card issuers offer this, but most do.
- Introductory APR: Some credit cards offer a low or introductory 0% APR (Annual Percentage Rate) on purchases, balance transfers, or both for a set period.
- Late Fee: A fee that is charged if you miss your due date.
- Minimum Payment: The minimum amount that's due every month on your account.
- Penalty APR: If you miss a payment, the credit card issuer may assess a penalty APR, which is higher than your regular APR for a set period of time.
- Rewards: Many credit cards offer rewards which vary in the form of cash back, points or miles that can be earned by a sign-up bonus or on everyday purchases.
- Statement Balance: The amount due at the end of each billing cycle.
Reveal the forgotten perks that only the best credit cards offer, by downloading our free guide:
First Credit Card Tip #2: Research is Key
Before you dive in and get your first credit card, be sure to research various credit cards and offers, including important elements such as applicable fees and interest rates. It’s important to remember that big banks and credit card companies are in the business of turning profits and they rely on charging higher interest rates and fees to do so.
Credit unions are not-for-profit financial institutions and aren't in the business to turn profits. Profits earned above expenses are returned to members in the form of lower fees, lower loan rates, and higher earning on savings. This means credit unions are typically able to offer first time credit card borrowers cards with lower interest rates and fees (if any).
Key Credit Card Features to Look For
In addition to the annual percentage rate and introductory offers, be sure to look for these key items and features before applying for your first credit card.
- Fee-FREE Balance Transfers
- Fee-FREE Cash Advances
- No Annual Fees
- Real-Time Transaction Alerts
- Emergency Credit Card Replacement
- Emergency Cash Disbursement
By comparing what household-name banks and credit card companies offer against a local trustworthy credit union, you’ll be able to make an informed decision.
First Credit Card Tip #3: Use Your Card Responsibly
To say that the excitement of receiving your first credit card may lead to overspending would be something of an understatement. Going on a shopping spree or binging on Amazon purchases leads to a high balance that can prove difficult to pay down. This financial behavior can also cause your credit score to drop.
By contrast, using your credit card responsibly makes repayment painless and improves your financial health. These are the ways you can use your first credit card to improve your financial well-being.
- Pay Off Monthly Balances Every Month, On Time: Consider using your credit card to purchase only the items you would normally buy with your debit card. Leave that income in a linked account and electronically pay off the balance each month, in full.
- Avoid Penalties: It’s crucial to not exceed the line of credit limit or pay less than the minimum monthly amount. These infractions ding your credit score. They also make it difficult to get your limits raised and get approved for loans like auto loans and mortgages later.
- Don't Max Out Your Spending Limit: Maxing out your credit card can lead to serious consequences such as lowering your credit score, increased minimum payments, and future transactions being declined.
By monitoring your spending and cash balances through a mobile app, you can keep track of your financial situation 24-7. As a safeguard against oversights, consider setting up high-balance alerts and payment due date notifications.
The Best First Credit Card Can Be Found at Peach State
If you're interested in applying for your first credit card, Peach State has a program specifically designed for young adults. Our Student Platinum with Rewards Visa Credit Card offers a low rate with no penalty APR, no annual fee, free balance transfers, emergency card replacement, real-time transaction alerts, and more. Contact us with any questions or apply online for your first credit card today.
To dive deeper into what the best first credit card should offer, review our "The Best Credit Cards Always Offer These Hidden Benefits" complete guide!
