Getting your first credit card could get you jittery – but knowing what to do before applying for your first credit card would save you a lot of time and anxiety. Therefore, a good understanding of some basic things would help to save you time and money while you strive to build a good credit score.
So, unlike a debit card – a credit card does not take money directly from your bank account. It offers you a short-term loan from the issuing bank of the credit card. However, you might be requested to pay interest if you fail or delay in making payment.
Interestingly, when you get a credit card – it helps you to build a good credit score which might be to your advantage when you want to buy a house. Also, you can get cash or travel rewards – which cut down your vacation expenses.
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However, the following are what you need to consider before getting your first credit card;
The Reward Program Offered By The Credit Card
The money and the cash-back reward you enjoy come from the merchant bank whenever you make use of the credit card. These fees are transferred into your issuing bank account. So, imagine getting about 2 percent on all purchases – this is well-able to cover for all your rewards over a while.
Making A Security Deposit Boosts Your Chances Of Getting Your First Credit Card
Do you know that applying for a secured credit card increases your chances of getting a credit card when it’s your first time applying for one? The secured credit cards are designed for people without credit or damaged credit. A cash deposit which might range from between $200 to $500 is often required.
This cash deposit in the long run becomes your credit limit. Besides, there is room to increase your deposit to qualify for a higher credit line.
However, when you fail to make a payment, you could lose your deposit, so making early payment and spending below your limit would make you earn a good credit within the shortest time. Besides, this could also be used as a factor in upgrading you to getting an unsecured card thereby closing the secured on a good slate (with deposited refunded is there is any)
The Need To Make Use Of A Physical Address
You must make use of a valid address when getting your first credit card. This is because both your statement and credit card will be sent to that location. So, other forms of address like the P.O. Box address will delay your application approval because a physical address is needed.
Know The Fees And Other Charges Before Applying
The card fees and other forms of charges are required to be displayed by the issuing company for a prospect to see before applying. This you can get under the “rate and fees” then the “pricing and terms” or enclosed on a slip for a paper application.
The fees include;
Annual fee: It is charged yearly
APR (Annual Percentage Rates): Interest rate charged on month-to-month balances. It varies from company to company and most times include; balance transfers, cash advances, purchase. However, there is a penalty APRs imposed by some cards for late payment.
Late fees: Charged for late payment even if it’s one day late or paying below the amount due
Foreign transaction charges: This is usually 3 percent charged when making purchases outside the United States.
Some Of These Fees Are Avoidable
You can avoid some of these credit card fees even if you are getting your first card. For instance, many secured-starter cards do not charge annual fees. Also, you can avoid late fees if you make an early payment.
Besides, you can avoid foreign transaction fees if you don’t buy anything outside the US (some issuers don’t charge foreign transaction fees).
Other forms of charges that you can avoid if you do not activate them are; cash advances, balance transfers, and over-limit fees.
You Need A Source Of Income Before Applying
Issuing companies will request the details of your income to be sure you can repay whatever you have borrowed. So, you might need to get a job or request your parents to cosign for you. However, for a student credit card – your parent’s income won’t count except if you have direct access to their income or you get a regular allowance from them.
Your Credit Utilization Rate Affects Your Credit Score
Your credit score, also known as your FICO score is determined by how much of your available credit is being used – this is called the credit utilization ratio. For instance, if your credit limit is $3,000 and you have a balance of $2,500 – your credit score will be affected.
So, it advisable to target using only 30 percent of your limit to help keep your score in good shape. Therefore, you are guaranteed that whenever your account status is sent to the credit bureaus – it won’t be too close to your limit.
Credit Card History Is Important
The activities on your credit card are usually sent to the credit bureaus or other credit reporting agencies every month – these bureaus are established to keep a track record of your credit history once you own a credit card or loan. So, all misdemeanors are like high balances, and late payments are captured on your credit report – which can prevent you from getting other credit cards in the future.
Your Correct Personal Information And EMV Security
Your details such as date of birth, your social security number, and some other confidential information are often needed to process your application. This also helps the credit bureaus to confirm your identity.
Besides, credit cards have an EMV chip – a form of security that prevents people from accessing your data. The EMV chip is built-in on the card and generates a code for every transaction – making it difficult for a fraudster to access your card. the chip only works when the card is used for physical transactions and not online transactions.
In Getting Your First Credit Card – If You Are Denied, The Issuer Will Give The Reasons
Credit card issuing companies are required by Federal law to send the reason why the application is being rejected. This is usually captured under the adverse action notice. So, an issuing company might not be satisfied with your income or credit history. Having this information will make you further prepared when applying next time.
Know How To Calculate Your Minimum Payment Due Before Getting Your First Credit Card
Credit card issuers send a monthly bill requesting the minimum payment available on your account. This is the minimum payable amount that can be paid. This can either be calculated through the percentage method or the percentage + interest + fees method.
For the percentage method, it is usually between 1 to 3 percent – so for a balance of $2,000, you will be required to make a minimum payment of $60
For the other method (percentage + interest + fees) – there is an 18 percent charged for making payment without paying off the card which will amount to 0.015 monthly (0.18/12). So, multiplying 0.015 by $2,000 gives $30 interest charged for the month.
Besides, a late payment could attract $35 – this totaling 3 percent payment of $60 plus $60 interest charged plus the late fee payment.
It is advisable to be well-informed, updated, and prepared before getting your first credit card because this will save you a lot of errors. These cards can be used to build your credit and offer rewards for your normal spending. So, they should be used well to get the best out of them.