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Debt isn’t a fun thing to think about, but when used responsibly, a credit card can actually help you achieve life goals such as purchasing a car or home. Building a strong credit history helps you prove to lenders that you’re financially responsible, and it makes you more likely to get approved.
If you’ve never applied for a credit card before, it’s wise to go into it with a solid understanding of what makes a good one, including what to look for, common pitfalls, and best practices.
With that in mind, let’s go over what you need to know about how to choose your first credit card.
Credit Card Terminology
First, it’s good to have a baseline understanding of the various jargon you’ll see as you search for your first card:
- Annual percentage rate (APR): The cost of borrowing over one year, expressed as a percentage — often referred to as the credit card’s interest rate. If you pay off your balance in full each month, you won’t have to pay interest.
- Balance: The total amount you owe to the card issuer.
- Credit limit: The maximum amount you can borrow. Credit card companies consider factors like your payment history and income when determining your credit limit.
- Billing cycle: The length of time between billing statement dates, usually between 28 and 31 days.
- Credit utilization: The amount of your available credit that you’re currently using, expressed as a percentage. You generally want to keep this below 30%.
- Grace period: The length of time between the end of your billing cycle and the due date, usually 21 to 25 days. You won’t be charged interest during this time.
- Annual fee: The amount you pay each year to keep your credit card open. Not all credit cards have annual fees.
- Minimum payment: The lowest amount you’re allowed to pay toward your balance each month. If you don’t pay at least the minimum, you may get hit with late fees, and missing payments can lower your credit score.
- Credit score: A number that expresses your creditworthiness. Lenders use this to determine whether to approve you for a loan.
- Authorized user: Another person who has been given permission to use the primary cardholder’s credit card.
- Prequalification and preapproval: The qualifying process a card issuer uses before inviting you to open a card, often unsolicited. The terms are often used interchangeably, but preapproval sometimes refers to a more rigorous process.
Common Types of First Credit Cards
Secured Cards
If you have no credit history or are looking to rebuild your credit, a secured card can be a good place to start. You start by paying a security deposit, and your credit limit is usually equivalent to this amount (often $200 to $300, while the maximum can go into the thousands). If you can’t pay off your balance in full in any given month, the card issuer will use your security deposit to cover your remaining balance.
After you make several on-time payments, your credit card issuer may convert your card to an unsecured card and return your security deposit. This usually takes somewhere between six and 12 months.
Unsecured Cards
An unsecured card is what typically comes to mind when you think of credit cards.
With no security deposit required, these cards usually have higher credit limits than secured ones. Plus, they generally offer some sort of rewards.
However, these types of cards tend to vary the most, and it can take a lot of research to find the right one. Also, they may not be the best choice for someone entirely lacking a credit history, as it can be difficult to get approved.
Student Cards
If you happen to be a college student, a student credit card could be a smart choice. You have to be at least 18 to open a student credit card, and if you’re under 21, you have to provide proof of income.
Even with the income requirements, it tends to be far easier to qualify for a student credit card than for a standard unsecured card. So, if you’re enrolled in a university, community college, graduate school, or trade school, it could be worth looking into.
Retail Store Credit Cards
Many retailers offer their own credit cards, with common examples being the Kohl’s Card, the Target Circle Card, and the Walmart OnePay Card. Some store credit cards only let you use the card at that particular store or a specific group of stores, while others let you use them anywhere. It all depends on the specifics of the card.
Keep in mind that store cards tend to have lower credit limits and higher APRs than typical credit cards. However, it could be a good starting point if you qualify and frequently shop at a certain store. It’s also usually much easier to get a store credit card than a card from a major issuer like Discover, Capital One, or Chase.
How to Compare Credit Cards
Even if you have an idea of the type of card you’d like to open, you shouldn’t just apply for the first one you see. It’s a smart idea to do a little research and see what your options are before deciding, as the card you land on could have lasting impacts.
When comparing cards, here’s what to look out for:
- Secured vs. unsecured: If a credit card is secured, your approval odds are higher.
- Introductory offers: Some cards offer welcome bonuses, which can take the form of gift cards, cash rewards, or miles. Certain cards have 0% introductory APR offers, which last for a set amount of time.
- APR differences: Credit card APRs vary widely, with the average sitting around 20%. If you pay off your balance in full each month, you won’t have to pay interest, so the APR doesn’t really matter. However, if you end up carrying a balance from month-to-month, a high APR quickly becomes a major issue.
- Rewards: Different cards offer different rewards, such as cashback, miles, or points. You might choose a card with rewards that match your lifestyle, but for your first credit card, it’s best to prioritize qualification over maximizing rewards.
- Annual fees: Some credit cards charge annual fees, while others do not. Before deciding to apply for a card with an annual fee, you should carefully weigh whether the rewards outweigh the costs. Often, for a first credit card, choosing something with no annual fee is preferred.
Because sifting through each individual card issuer’s site can be a tedious undertaking, one way to help streamline the comparison process is to visit a dedicated comparison site like BestMoney.
These comparison sites aggregate basic information on credit card APYs, rewards, and offers, and they usually have filters you can use to home in on the type of card you’re looking for. There are typically detailed reviews for each card as well, so you can get a broad look at potential benefits and drawbacks.
Applying for a Credit Card
Once you’ve decided which card you want, it’s time to apply. Here’s how the process works:
Check for prequalification/preapproval. You may receive prequalification offers in the mail, so keep an eye out for those. Prequalification is popular because it only involves a soft credit check, meaning it won’t affect your credit score. However, you’ll also need to carefully review the terms of any offers, since it can be tempting to sign up for the first flashy card that comes your way.
It could be more difficult to prequalify if this is your first credit card, but it’s still possible if you have a stable income and otherwise have a credit history.
Gather your information. You’ll need to provide several pieces of personal information when applying, so it’s best to have it all together beforehand. Common data that credit card companies request includes your:
- Full legal name
- Date of birth
- Annual income
- Social Security number
- Employment status
- Monthly housing or rent payment
Submit your application. The easiest way to do this is online at the credit card company’s website, but you can also apply over the phone or in person at a bank or credit union.
Wait for the card company’s decision. You can often get a decision within minutes, but depending on the specifics of the card and if your application requires further review, it could take several days. However, card issuers are required to give you a decision within 30 days.
The main variables that the card company will consider are your income and your credit score (if you have one). Usually, credit scores range from a low of 300 to a max of 850, with a higher number being better.
There are several factors that determine your credit score, including:
- Payment history
- Credit utilization
- Length of credit history
- Recent credit activity, like credit applications
- Credit mix, such as having a variety of credit cards and loans
Receive the decision. If you’re approved, the card company will mail you your credit card, which will usually take around 7 to 10 business days. If you’re denied, the card company will send you an adverse action notice, which explains the reasons why you weren’t approved. Some possibilities include having a low credit score or having no credit history.
Activate your credit card. Once you’ve been approved and have received your credit card in the mail, you’ll have to activate it. You may need to call a number, scan a QR code, or visit a website to do so.
Credit Card Best Practices
Once you’ve obtained your first credit card, you want to use your card responsibly to achieve and maintain a high credit score.
Here are some basic tips to follow:
- Spend only what you can afford
- Pay off your balance in full each month
- Keep credit utilization below 30% (ideally below 10%)
- Don’t apply for too many cards at once
- Use your rewards!
Getting Started on Your Credit Card Journey
While some people get by without a credit card, opening one can help you build a credit history and make major purchases possible down the line.
If you have no credit history whatsoever, it may be best to start off with a secured card or as an authorized user on someone else’s card. Over time, as you build your credit history, you’ll be able to qualify for more cards with better rewards.
Once you’ve started using your first credit card, you may be tempted to open others, especially when you start receiving prequalification offers in the mail. But be careful not to open too many — the more credit cards you have, the more difficult it becomes to keep up and pay off your balances in full each month.
Opening your first credit card is something to celebrate, but be sure to do plenty of research beforehand.
