Like learning to ride a bike or going on your first date, getting your first credit card is a major life milestone. It can be exciting when the credit card offers start coming in, but it is important that you take the time to understand credit cards before you start applying for them.
Let’s start with the basics! A credit card is the first step to establishing credit. Your credit score will have a major impact on your life, so you want to start off with good habits right away.
Some of the things that your credit score could impact include:
- Interest rate on loans, like car loans or mortgages
- Price of insurance
- Price of cell phone plans
- Applications for renting an apartment or house
See how important your credit score will be? A positive credit score can help you save money over the years and can make it easier to get approved by a landlord if you rent. On the other hand, a negative credit score or no established credit at all can make those things more difficult.
Once you get your first credit card, you will want to make sure that you use it wisely to keep your credit in good shape.
What Should I Look for in a Credit Card?
Don’t get overwhelmed by the many credit card options out there. Your first credit card will likely be one designed with a first-timer in mind. Here are some of the things to consider:
- Annual fees – some lenders charge an annual fee for any credit card, others do not. A credit card with no annual fee can help you save money.
- Annual Percentage Rate (APR) – this rate refers to the interest that you will pay on your credit card purchases when you carry a balance. A lower APR is better. As you build credit over the years, you will qualify for better APRs in the future.
- Rewards – many credit cards offer rewards for using your card. These can range from cash back to bonus points. Rewards might allow you to earn free travel or buy merchandise for free. Try to find a credit card with rewards that align with your lifestyle.
Consider Long-Term Impact on Credit Card Deals
Some credit card offers might sound amazing at first glance, offering things like zero interest for 15 months or no annual fee for the first year. But make sure you understand the long-term impact before signing up for such a deal.
Zero interest for 15 months may be good right now, but what will the interest rate be once the promotion period ends? If it skyrockets, the deal could end up costing you more in the long run.
Similarly, no annual fee the first year is fine, but make sure to look at how much the fee will cost once it kicks in. It is better to find a credit card that doesn’t have an annual fee at all for long-term savings.
Create Smart Credit Card Spending Habits
Before that first credit card arrives, make sure you have a plan for smart spending. In other words, don’t spend beyond your means and keep up with your credit card payments. Make your payments on time and remember that if you only make minimum payments, you will pay more in interest over time.
You also want to make sure you don’t max out your credit card. Having a balance carry over from one month can be alright depending on your situation, but it should be minimal, like no more than 30% of your overall credit. This will help your credit score and make sure that you have credit available should an emergency occur.
If you still aren’t sure if you’re ready for your first credit card, consider taking a free online money management course that goes over all you need to know about credit cards. You’ll be ready in no time!