Credit Cards

5 things to know if you are applying for your first credit card

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Don’t apply for your first credit card without reading this.

Key points

  • Applying for your first credit card is an important financial milestone.
  • Your credit score could be affected by your borrowing behavior.
  • You can also earn valuable rewards and take advantage of cardholder benefits.

Applying for your first credit card is an important milestone. Your card could potentially help you build good credit and earn valuable rewards to pay for everyday expenses. But to make sure you’re getting the right card and using it in the most responsible way, there are five key things you need to know.

1. Credit card interest rates can be very high

One of the first and most important things to keep in mind when applying for your first credit card is that the interest rates on this type of debt can be extremely high. It’s not uncommon for a card to carry an interest rate of 17% or more, especially if you’re getting a card geared toward first-time borrowers who may not have a strong credit history.

When a credit card has a high interest rate, carrying a balance can be expensive. Ideally, you’ll want to avoid charging more to your card than you can pay in full when you receive your statement. If you can pay off your card, you’ll avoid these high interest charges and get the benefits of a card without taking on debt, which can affect your financial future.

2. A single late payment can hurt your credit score

After you’ve been approved for your first credit card, you’ll want to make sure you make at least the minimum payment on time, every time. Your card issuer will report your payment record to the three major credit reporting agencies. If you’re late on a payment, it can cause your credit score to drop dramatically, especially if you only have one card on your credit history and don’t have a strong history of responsible borrowing.

Since businesses, including landlords, use your credit score to determine if you’ll be a trustworthy customer, you don’t want to risk lowering your score. To make sure you don’t inadvertently miss a payment, consider setting up automatic payment so the money is sent directly to your creditors on time.

3. Credit card rewards can be valuable

Although it can be challenging to get your first credit card if you don’t already have a strong credit history, hopefully you’ll have some good card options that offer rewards. Many cards, including some aimed at first-time borrowers, offer cash back, points, or miles. If you can earn rewards for expenses you would have to make anyway, this can be a huge financial advantage.

To get the most out of your credit card, try to find a card that offers extra rewards for the things you spend most often. So if you travel frequently, for example, see if you can request a first card that gives you extra points to book plane tickets, hotels or rental cars.

4. Maintaining a low credit utilization ratio is key to improving your credit

If you want to make sure your new credit card helps you build credit, you need to understand how credit utilization ratios work. Lenders consider your credit utilization ratio when setting your score, and a lower utilization ratio is better than a higher one.

So what is your credit utilization ratio? It refers to the amount of your line of credit that you use on your cards. If your card issuer gives you a credit limit of $1,000 and you load $500 on the card, you would have a utilization rate of 50%. Anything above 30% can damage your credit, so try to avoid it.

5. Cards may have fees, but sometimes they’re worth paying for

Finally, you should be aware that credit cards sometimes come with fees that you’ll need to pay beyond the interest rate.

Sometimes these fees are worth paying. For example, if you sign up for a travel card with a $99 annual fee but get free checked bags and a $100 statement credit for in-flight purchases, it may be worth paying the fee because of these benefits. .

However, in other situations, the additional costs imposed by your card issuer may not be worth it. For example, if your card charges a foreign transaction fee and you travel abroad frequently, you could end up paying more for all your purchases while you’re away.

By considering these five factors when applying for a card, you can choose a card that rewards your spending and doesn’t impose unnecessary costs on you, and you can ensure you’re using your card wisely to help rather than hurt. your credit score.

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