The Grad's Guide To Your First Credit Card (& Not Screwing It Up)
Conquer all your fears with these hot tips from experts.
Credit cards can be the stuff of dreams (like using it to pay for a Sephora haul) and nightmares (like paying that bill). When you’re new to paying everything on your own, they can seem especially daunting — interest rates, payments due, and credit scores, oh my! But your first credit card doesn’t have to be intimidating. Once you understand most of the jargon, know what to look for, and more importantly, what to avoid, you’ll be ready to add a new piece of plastic to your wallet in no time.
“Having a credit card doesn't automatically mean you’ll be in debt,” Joy Liu, a certified financial trainer at The Financial Gym, a financial planning company, tells Elite Daily. She says it’s all about balance (no pun intended), and avoiding credit cards altogether “can be detrimental to [your] financial health.”
To help demystify the process, from finding the right card to figuring out WTF an APR is, Liu and other experts provided a breakdown of everything you should consider when you think you might be ready for a credit card.
When To Get Your First Credit Card
There’s no “magic” age to get a credit card. You can apply for one at 18, but many people don’t commit to their first piece of plastic until they’re 20, according to a May 2019 survey published by The Motley Fool’s Ascent, a private financial and investing advice company.
If you struggle to manage money on a debit card, a credit card may not be for you — yet. You shouldn’t look at a credit card with a mindset of “Yay! I’m gonna put everything on my credit card,” says Jason Steele, a freelance journalist based in Denver, Colorado, who has been writing about credit cards since 2008. “That’s how new credit card users get into trouble.”
So, when do you make the plunge? “Get a credit card when you’re ready to handle it responsibly,” Steele says.
Pick The Best Card For You
For your first credit card, choose one “that's simple to operate,” says Steele. “It won’t offer fancy rewards and benefits.” If you have trouble qualifying, look at cards designed to help rebuild credit.
Pay attention to a card’s annual fee and interest rate, known as the annual percentage rate (APR). Most entry-level cards don’t have an annual fee (and you won't want one for your first card, anyway), but every credit card has an APR based on your credit score — aka a rating of how well you manage your credit. You want the lowest rate possible, be careful if you select a 0% APR offer, since they usually come with higher interest rates after the interest-free period ends.
Consider Credit Card Alternatives
Can’t get approved on your own? Don’t stress; you still have options to build credit.
Become An Authorized User On Someone Else’s Card
Ask a parent or a trusted person in your life to add you as an authorized user on their credit card. You’ll receive a credit card linked to their account, and it’ll help you accrue credit. The caveat is that any late payments or big purchases will affect both of your credit scores.
Get A Co-Signer
If you really want your own card, ask a parent or trusted person in your life with good credit to co-sign. This is a big ask, as it means they agree to pay your balance if you can’t, so make sure you have a good relationship with your co-signer and stay on top of your spending.
Use A Secured Credit Card
Sign up for a secured card to start building credit. It functions like a normal credit card, but you place down a refundable security deposit, which isn’t typical of credit cards. The deposit usually becomes the credit limit on the account.
Try A Credit-Building Debit Card
Cards like Extra or Tomo connect to your bank, front you money for daily purchases, and automatically collect that money the next day as opposed to the 30-day repayment period of a regular credit card. The credit card company then reports your transactions to credit bureaus, helping you build credit.
Practice With A Prepaid Card
Prepaid cards help build discipline, according to Kaysi Gordon, a certified financial advisor based in Long Island, New York. “When you're comfortable and understand how having a credit card works, you can go from there,” she says. Unfortunately, prepaid cards don’t help you build credit.
Open 1 Credit Card (For Now)
You might want to open a second card to charge even more purchases, but hold off. It could negatively impact your credit score for a few months, according to Liu. “A best practice is to have six months in between applying for new credit,” she says.
To increase your prospects for “the most competitive cards,” Steele suggests you open a second card after you’ve successfully navigated one card and have reached an ideal credit score between the “high 600s and mid-700s.” (You can keep track of your credit score with free services like Credit Karma, CreditWise from Capital One, WalletHub, or your bank’s app.) Credit scores are used by institutions like banks and landlords to determine things like where you can rent an apartment or if you can even get a credit card.
The sweet spot for building your credit is having around five credit cards, Steele says. “When you have multiple credit cards you manage responsibly, you’re adding more positive information to your credit history.” Opening more credit cards extends your overall credit limit, too — but don’t open cards you can’t afford only to increase your limit.
Use Your Credit Card Sparingly
Warning: Avoid a high credit utilization ratio, which compares your overall spending limit with what you actually spend, as could make your credit score plummet. If your limit is $1,000 and you have a balance of $500, you’re at a 50% credit utilization ratio. A typical rule of thumb is to keep your credit utilization ratio at 30% or less.
There’s a myth that you have to use your credit card often to get good credit, and the reality is, you don’t.
To keep your balance down, don’t use your credit card for day-to-day charges. Liu recommends charging a couple of monthly fees like a phone bill or Netflix subscription. “It’s gonna work out better in the long run if you start slow — your credit is gonna soar,” says Steele.
Stay On Top Of Your Payments
The golden rule of credit cards is to pay off your total statement balance — which is how much you owe each billing cycle — every month. It’ll save you from paying interest, which can add up quickly. (You may not be able to pay the statement balance every month, which is OK; but try to pay more than the minimum payment if you can.)
Ideally, you’ll never make late payments, but you’re not totally screwed if you miss a deadline. Steele and Liu say a payment late by less than 30 days isn’t likely to negatively affect your credit score, but a payment late by more than a month will make your score go way down.“The moment you realize it’s late, make the payment,” advises Steele. Then, call your credit card company. “If it’s not a frequent issue, call the company and ask them to waive the late fee,” suggests Gordon. “Most will honor that.”
To ensure you don’t miss payments, set up affordable automatic monthly payments so you can make some sort of on-time payment. If your bank allows, change the payment due date in your app to one that works for you. Steele recommends setting a due date that’s a few days after when you get paid.
Reassess Your Spending
If there’s a month you won’t be able to pay off new credit card charges, just don’t use your card. “There’s a myth that you have to use your credit card often to get good credit, and the reality is, you don’t,” says Steele. “You should never use your credit card just to help your credit.”
But try not to go too long (more than three months) without using your credit card, because the credit company could close your account and ding your credit score. And never close your very first card, which contains the longest history of your payments.
Start Your Credit Journey
Steele recommends opening a card at a bank where you already have a checking or savings account to simplify the experience and keep it all in one place. “When [you] need to make a payment, it’ll be a transfer between two accounts under the same institution,” explains Steele.
A card with a credit union is also a great option. “They are nonprofit organizations that are financial institutions. Their whole job is to serve the community, not to make a profit,” Liu says.
To apply, have your Social Security number, address, employer, and income ready to complete the application. You could be approved instantly, or you may have to wait weeks for a decision. When you get your glossy new plastic, remember to use it wisely — and maybe snap up the Savage X Fenty set that’s been living in your cart.
Jason Steele, freelance personal finance journalist and credit card expert