Getting your first credit card is a major accomplishment that requires a lot of discipline to keep up with. The process of applying for your first credit card can be both thrilling and intimidating. It’s time to complete the application once you’ve made the decision to apply for your first credit card and have chosen what you believe to be the ideal option for you.
Some of your worries can be reduced by knowing what to anticipate. This blog post will walk you through every step you need to do to prepare for getting your first credit card.
Things to Know Before Applying for First Credit Card
1. Understand how a credit card works
A credit card looks quite similar to a debit card, but instead of deducting money from your bank account, it functions more like a short-term loan from the bank that issued the card. If you don’t pay off the card each month, you can have to pay interest.
Purchasing anything with credit is doing it with the understanding that it will be paid for later. A credit card offers flexibility, but just like other loans, there are repercussions if the repayment promise is breached.
Credit cards aid in the development of good credit, which enables lenders to grant you advantageous interest rates, approve you for housing and even result in cheaper insurance premium payments.
2. How to choose the best card
You probably won’t be able to qualify for the best credit cards, which are the ones with generous rewards and privileges, substantial sign-up bonuses, or lengthy 0% interest periods, as a credit novice.
With your first credit card, you’ll probably have to start modestly with a product designed for those with little to no credit history. Many of these cards don’t have annual fees and offer respectable rewards.
A student credit card
Applying for a student credit card can increase applicants’ odds of being accepted. If the credit card company rejects your application, the company will send you a letter outlining the precise grounds for the rejection. When you receive that letter, make use of the details to aid your subsequent credit card applications.
A secured credit card
A secured card is a card that needs a cash deposit or checking account with the bank. Depending on the card, the minimum deposit ranges from $200 to $1,000. The majority of secured cards let you increase your deposit to acquire a bigger credit line.
With time you can lower the amount of money you have to put as a deposit, and eventually, you might be able to change the card to an unsecured or regular credit card.
3. Do not apply for too many cards
You face the danger of having multiple hard inquiries on your credit report if you apply for many credit cards quickly. That may lower your credit score and make you appear hazardous to other lenders, which may make it more challenging to acquire loans.
When already using credit cards it does not matter if you are using multiple cards if you are using them responsibly.
Apply for one at a time and wait one or two months before doing so again. This offers your credit score time to recover from hard queries while enabling you to choose the cards you wish to carry in your pocket with knowledge.
4. First card should be a keeper card
A significant financial turning point, getting your first credit card also signals the beginning of your credit history. However, if you’re not careful, it might have the opposite result.
Your issuer will submit information about your credit card use each month to credit agencies, who are responsible for compiling the credit reports that serve as the foundation for credit scores.
Whether you make your payments on schedule and how much of your available credit you use is among the reported details. Maxing out your credit card and making late payments both lower your credit score.
Spend about 30% of your credit limit each month and make sure your payments are made in whole and on schedule to ensure that your credit card activity is as beneficial as possible.
But the most important factor about your first card is that it determines your tenure of credit history. I applied within the first month of reaching the USA, it was a secured credit card from BofA. I haven’t closed the card, it is a fee-free card, so my credit tenure remains at 15+ years, which is good for my score.
5. Understand terms and their significance
Federal law requires credit card issuers to make certain conditions, such as interest rates and fees, publicly available before you apply. These are shown in a table known as a Schumer box, which is often located on a credit card’s online application page.
Senator Chuck Schumer pioneered the legislation requiring the terms of credit cards to be explicitly specified in any promotional material. We honor his contribution by the appellation “Schumer Box” in his honor.
It shows what the card will cost you, including the various annual percentage rates (APRs), an annual fee, a cash advance fee, a late payment fee, a returned payment fee, and other expenses.
6. Don’t avoid the fine print
Do not underestimate the financial consequences of failing to read credit card agreements. The most significant of them are “surprise” charges, rates of interest, and payment requirements that you might not have been aware of when you signed the credit card deal. The issue is that once you agree to the conditions of the card agreement, you are obligated to abide by them, good or bad.
The best course of action for credit card users is to educate themselves on the meaning of the major terms and clauses in their card contracts and then utilize that knowledge to take the appropriate actions to maximize the benefits of their credit cards.
7. Don’t mislead in your application
You must respond to a series of intimate questions about your life and finances during the application process.
To appear more “creditworthy,” it may be tempting to overestimate income, understate debt, or lie about other elements of finances.
If you lie on a credit application, you could face jail time and hefty fines as punishment. Because a credit card application is a legal document, it is still possible by law to accuse you of fraud for making false statements.
8. Be responsible with your credit handling
Your credit card is a great financial tool if handled responsibly. It’s crucial to develop the practice of utilizing credit wisely.
Consumers frequently use credit carelessly. When we make impulsive purchases, purchase stuff we cannot afford or maintain a standard of living much above our current means, credit cards become an issue.
Living within your means and not exceeding your budget are essential components of good credit management.
Keep a list of all the purchases you make with your credit card, so there are no shocks when your statement comes in the mail, Additionally, you’ll be able to control your expenditure. Verify that you are only charging what you can afford to spend.
9. Do not miss the due date
Missing payment dates hurt your credit score. Your potential consequences could include
Late payment penalties
These fines have legal caps that are updated yearly. The majority of credit cards have late payment penalties of up to $40, but make sure to review your card’s terms and conditions.
Higher interest rate
When a credit card payment is past due, the issuers typically impose a penalty interest rate. Many issuers impose penalties on the amount of unpaid debt at as much as 30%.
Damage to your Credit
Usually, no harm comes to your credit if you pay a day late. Lenders normally notify credit bureaus of missed payments after they are more than 30 days past due. These missed payments could remain on your credit report for up to seven years from the default date.
10. You should not use the full credit limit
Your credit utilization ratio is the proportion of your available credit that you are using. This has a significant impact on your credit scores.
Your credit utilization rate evaluates how much of your total credit limit is across all accounts you have used. Not only should you not go over the credit limit on your card, but if at all possible, avoid going any closer to the limit.
It is ideal that credit utilization is under 30%. The lower your credit utilization ratio is, the better. By doing this, you can make sure that your outstanding balance won’t be too close to your credit limit whenever the issuer reports the status of your account to the credit bureaus.
11. Know your credit report and score
There are tons of credit cards in the market. They have widely available public data on the minimum credit needed for any particular card.
Any application for credit will be in your report and can potentially damage your credit score if you keep on applying and keep on getting rejected.
Know what your score is and apply for a card that accepts similar credit scores. Your chances of getting approved will improve this way.
12. Maximize credit card rewards
In reality, the fees paid by the merchant’s bank when you use your card to make a purchase finance credit card rewards programs. The costs, which amount to around 2% of each purchase, are paid to the bank that issues your card finance the rewards programs.
Cash back, points or miles are the three reward types that credit cards typically offer. Depending on the card you hold, you can win different incentives.
Most cash-back cards permit you to accrue a certain amount of cash based on your expenditure
Other reward cards offer miles or points but don’t offer cash back.
The majority of co-branded airline cards include miles in their distinctive membership rewards scheme.
13. Know if you can spend to earn the sign-on reward
In order to earn the rewards and bonuses, you need to spend a minimum amount on your card within a certain time frame. For example, Card A can have a $200 bonus if you spend $2000 within the first 30 days of account opening.
Check your spending power before applying for that card. If you can’t spend $2,00 within 30 days you will not earn the bonus.
14. Know how to deal with credit card fraud
If someone uses your credit card details fraudulently:
It’s not your money at risk; it’s the money of the credit card corporation. You’ll have plenty of time to contest any erroneous charges and take them off your unpaid balance, usually immediately.
How to Respond If You’ve Been a Victim of Credit Card Fraud
Alert the Issuer of Your Card.
You should add a fraud alert to your credit report.
Change your passwords and check your card accounts.
Inquire with the credit bureaus
15. Check with your family for additional cards
Check if your partner or your child needs a card to build their credit, some cards, especially from AMEX report additional cardholders to credit bureaus. Also in order to make sure of the minimum spend requirement towards the sign-on reward it’s advisable that multiple members of the family use the card to increase spending.