Before You Get Your First Credit Card – Money Pacers
Before You Get Your First Credit Card

Before You Get Your First Credit Card

(MP) A credit card may seem like just another toy to help you buy stuff, but it can be much more. When used responsibly, that plastic card helps you build a good credit history. They also allow you to get loans at good interest rates, cheaper insurance rates, and even a new house or car. With the plastic card, you can also earn rewards on your everyday purchases and protect those purchases in case of theft or damage.

For first-time users, deciding on which card to get can be a daunting task. Before you start applying to financial institutions, take the time to learn about how credit works, what your options are and how you should actually go about getting the card.

Who issues your credit card?

Banks, credit unions, and card companies all grant credit to qualified individuals. These are financial products used like loans, but instead of borrowing a set amount all at once and then repaying in equal installments until you’re eventually at a zero balance, you’re given a credit line to use in a far more flexible way. This line is the maximum amount they’ll let you borrow and that can range from a few hundred to tens of thousands of dollars. The issuer (finance company) sets the terms, which include a credit line, annual percentage rate (APR) and the number of days you have to send a payment before the interest-free grace period expires (around 30 days).

How to use your card?

When you get the card, you may start using it immediately. You can shop at a store, order over the telephone or buy something online. You can use it as often as you like, as long as you don’t exceed the credit limit. In about 30 days, you’ll receive a bill.

It will indicate what you charged and where, as well as the total of what you owe. While it’s recommended that you pay in full, you do have the option to send at least the requested minimum payment, which is usually about 2 percent of the balance. Interest will be added to any remaining balance that you roll over to the next month and the higher your APR, the more in finance fees you’ll pay.

What banks do with your credit information?

What you do with the card is no secret. The issuer sends all of your activity, including the credit line given to you, the amount you currently owe and whether you’ve made on-time or late payments, to the three major credit reporting bureaus — Experian, Equifax and TransUnion. These credit companies compile your data into credit reports that they make available to others interest in extending you credit. To make it even easier for those who want to know how you’ve been managing your credit, a credit scoring company takes all your financial data listed on the reports and translates it into a score. That number is the quick and easy way for a lender to know what kind of borrower you are.

How do I get a card with no credit?

In case you don’t have good enough credit to acquire a card by yourself you can still get a card if somebody co-signs your application, meaning they’re liable for the payments in case you don’t make them. (If you’re younger than 21, you’ll need a cosigner, except if you can show you possess an independent source of income.) Whenever you ask someone to cosign a credit account, you’re asking to put their finances and credit in jeopardy, so be certain you along with your potential cosigner take into account the consequences exactly how you’ll handle arrangement before you commit.

In case you don’t want a cosigner (or don’t obtain the option) but have bad credit or no credit, you may wish to consider obtaining a secured card.

What is secured credit?

With a secured credit card, you pay a deposit to secure your line of credit — that way, if you don’t continue to make your payments, the credit card company can take your deposit and guard against losses. It’s risky to give credit to someone with no credit history, that’s because the lender hasn’t any indication of how the consumer will handle it so that security deposit takes away that risk.  Your security deposit generally sets your credit limit: With a $500 deposit, you’ll have a $500 credit limit (though, many times, you may well be able to get a credit limit higher than your deposit). Since you need to give the credit card company a deposit, most issuers require you to have a bank account so you can get a secured credit card.

To ascertain good credit using a secured charge card, you’ll want to make all your payments promptly and use as little of your available credit as possible — ideally less than 30% of your credit limit or, a lot better, less than 10%. That means keeping your charge card balance at less than $150 (or less than $50) if your credit limit is $500 and paying the bill on time whenever it’s due. Check out the secured cards that are currently being offered to people with a thin credit profile. Apply for the one that looks right for you and then waits until they contact you and you’re approved.

Don Briscoe
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Don Briscoe

Finance educator, advisor, and leading voice in the global financial literacy movement.Founder and editor of lives and enjoys life with his family in New York.
Don Briscoe
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