Are you looking for your first credit card? This is a decision that you should not take lightly. Most consumers got their credit card for the very first time at a young age. Usually, this is during their college years. Some people wait until they graduate and start a job before they apply for their first card.
Owning a credit card is one of the signs that you are ready for more financial responsibility. This card is something that you will use to make more secure purchases. It makes spending more convenient. Even if you do not carry cash with you, the credit card can be used as a purchasing tool.
Of course, you have to keep in mind that your credit card is not an extension of your wallet. You are actually borrowing the money of the creditor. That means it is considered as a debt that you need to repay.
Now that is where your first credit card can make or break your financial stability. If you are not careful, you might end up like 23% of Millennials who are unable to completely pay off their credit card balance for at least a year. This statistic shows us that a lot of young adults have been struggling with credit card debts. There is a high chance that their debts include their first credit card.
The important role of your first credit card
The truth is, the very first card that you will own will help you learn how to use credit in the future. It will set the habits that will either make you a responsible spender or a reckless one.
When you get your first credit card, it can be tempting to splurge. Regardless of what experts say, it really does feel like an extension of your wallet. This is probably why a lot of first time users end up with a lot of credit card debts. You can really go crazy with your expenses and nobody will really tell you to stop until you max out the card.
Of course, we all know this is not the right way to react to your credit card. According to reports, Americans who are between the ages of 18 and 29 years old owe around $1.05 trillion worth of debt. While the majority of this is student loans, a huge part of it is also credit card debt.
Among all the debt owed, credit cards pose the most threat because it has a high-interest rate. If you fail to pay it off in full, a finance charge will be added to the existing balance. This interest rate is calculated based on the interest rate and balance. The higher the interest and the balance, the greater the finance charge. If you keep on carrying over a balance onto the next billing cycle, you will be paying a lot more in terms of interest. This is how untamed credit card debts begin. Soon, you will find yourself with too much credit card debt that is already too much for you to pay off.
This is the reason why you need to choose your first credit card wisely.
4 qualities your first credit card should have
The truth is, your credit card debt is mostly caused by your attitude towards the use of credit. However, that does not mean getting just about any credit card as your first is okay. You have to choose the one with the right features so you can always maintain financial control over your credit card debt.
Here are the 4 qualities that your first credit card must have to help you practice the use of credit without putting yourself through so much debt.
One of the requirements to get approval for a credit card is your credit history. This is the creditor’s way of checking how you use credit. But since this is your first time to apply, your credit history might be a bit useless for now. This is why you need to opt for a credit card that has a lower eligibility requirement. After all, the creditor will conduct a hard inquiry on your credit report. That can negatively affect your weak credit score. You want to gain approval for the card because it is your chance to recover from that credit score hit.
There are credit cards for first-timers that does not require high qualifications. Secured cards are usually a great option. It will require you to make a deposit for the card but it works just like a traditional credit card. It can really help you build a better credit history.
Most of the time, first credit card accounts are imposed with high fees – especially if you opted for those that have low eligibility requirements. Make sure that when you apply for a credit card, you should take the time to look at the various fees. These include late fees, annual fees, foreign transaction fees, and over-the-limit fees. While it is not advised to use your card for cash advances, it is still a good idea to check it out.
Understanding these fees will help you determine what you should not do in order to avoid additional payments. You can also consider negotiating some of the fees. That way, most of your payments will also be on your principal balance and nothing else.
The APR is the annual percentage rate that you have to pay for using the money of the creditor for your purchases. Since credit cards are notorious for having high-interest rates, you should not expect to be given a low rate for your first credit card.
Of course, there are ways to avoid paying the interest fees on the credit card. You just have to make sure that you pay all your balance when the billing statement comes – or within the grace period. This will keep you from having to pay the finance charge.
Rewards programs are one of the perks of having a credit card. If you will get your first credit card, make sure you choose a card that has rewards that you can really use. If you love to travel, then apply for a card with travel rewards. Or if you travel by car all the time, apply for a card that will give you gas rewards.
According to one report, 1 out of 3 Millennials choose a card with 3% cash-back rewards. It is like always buying stuff with a discount. It can be really useful when you accumulate enough points. Make sure you know your options so you can make a smart choice about it.
Some people just get credit cards from establishments offering immediate discounts on purchases. This is okay but make sure it is a store that you will regularly visit. If not, then you should refrain from getting it.
Ideally, the first credit card that you should get is something that you will use all the time. Expect to use it for a very long time. You can build a good credit reputation through this card. Old credit accounts can help you maintain a good credit score. At least, as long as you use it and you pay your dues in time.