How to Choose Your First Credit Card

Opening your first credit card is an important step towards financial independence in a young adult’s life. Credit cards are a great way to build your credit history, to make large purchases, and to use during emergencies. However, you should proceed carefully. As with most financial decisions, there are risks and benefits associated with opening and using your first credit card. If you weigh your options carefully and are aware of the risks, opening your first credit card can be hassle free.

Find out what your credit score is. Your credit score is a number from 350 to 850 that represents your creditworthiness.

  • You can check your credit score by requesting a free copy of your score.
  • Since this is your first credit card, you may not have much of a credit history or you may not have any credit history at all.
  • If you have a higher credit score, you may be eligible for better offers with lower interest rates and higher credit limits.

Build your credit history. Credit cards are a great way to build credit history, but if you don’t have any credit history, it is more difficult to be approved for a credit card. There are a few different ways to build credit that can make it easier to be approved for your first card.

  • Apply for a secured credit card. These cards require a cash deposit and people with no or little credit history can apply and be approved more easily.
  • Use a co-signer on your credit card application. A co-signer essentially vouches for your ability to pay back your credit card debt. If you misuse your credit card and build up debt, this can negatively effect the credit score of your co-signer.
  • Become an authorized user of someone else’s credit card.

Understand the risks. When used properly, there are benefits to opening your first credit card. However, first time users are at risk of abusing them and piling up credit card debt.

  • Having high amounts of debt can limit your ability to get approved for loans, to own a home, and is a financial burden on yourself and your family.
  • When you receive your first credit card, it’s important to establish good financial habits and to avoid accumulating unnecessary debt. Setting and following a budget is a great habit to establish.

Set your budget. Credit cards are useful because they allow you to purchase items on credit, rather than immediately taking money out of your account, but it is important to follow a budget.

  • Know how much you can afford to spend each month. You will need to pay at least 2% of the balance in every billing period. 
  • It is highly recommended that you pay your entire balance off each month so you do not accrue interest.
  • Know the benefits of having a credit card. A credit card is a good way to build your credit, which can help you to qualify for lower insurance premiums, loan rates, and to help you be approved for an apartment.
UP