How to Get Your First Credit Card
The Importance of Credit Cards
There was a time when pretty much everything was paid for with cash or maybe check. Although there is a movement to return to that, today's reality is that most things are paid with either credit or debit cards. Debit cards are fine for most things, but try using one to rent a car or a hotel room. The assumption is that you will be using a credit card and everything will go smoothly. With a debit card or cash, if they will even take that, you will probably need to make a large deposit or go through some other hoops. In the meantime, that money is not available for other things. Clearly, credit cards make life easier. They are all about convenience.
Kinds of Credit Cards
Luckily there is an abundance of cards to get. Regardless of your circumstances, there is one for you, but which one should you get? That depends on what stage you are at in your life and what is important to you at the moment and in the long run.
Some cards are designed for people who never carry a balance and never travel. For them, a cashback card may be the best choice. Some cards are designed for people who have been in financial trouble and need to re-build their reputation. A secured card may be best for them. Other cards allow people with lots of high interest debt to reduce the cost of their borrowing. The number of choices and the variety of features can be quite overwhelming, but it is important to do the research to meet your particular needs.
The Importance of Credit
Using a credit card is essentially the same as taking out a short term loan that you will pay back later. There was a time when the assumption was that you were a good person and you would actually do that. Today, lenders are a lot more cautious. You pretty much have to prove that you are worthy of their trust before anyone will believe you. One of the most important ways people judge you is based on your credit score. Yes, it is used to make lending decisions, but it can also mean whether you get that job or apartment you want or how much you pay in car insurance. Your credit score, or FICO score as it is also known, is just too important to ignore. Some people obsess about it, constantly trying to increase it by another point. That is not necessary for most people. Most decision makers use ranges to make their decisions anyway and at some point the effort is just not worth it anymore. When even small differences matter is when you are first starting out or if you have messed up and need to repair the damage.
How the credit score is calculated is a well kept secret, but experts have written extensively about what factors influence it. One thing is certain, nothing beats consistently doing what you promise to do. That means paying your bills on time every time.
Most of the literature regarding building your credit history you will find is focused on repairing credit that has been damaged. There are so many advantages to having good credit. Over a lifetime it can save you thousands of dollars. This book shows you how to get started building that credit history.
How to Get Your First Card
At some point most parents have tried to teach their kids about money. They may have opened a savings account for you. When you got that first job, you probably had your pay deposited into that account or a new checking account at the same bank. Some banks will actually watch that activity and decide that you have exhibited some consistency and may on their own offer you your first credit card. In other cases, all you have to do is ask.
These decisions are not usually made based on your credit score, but on the relationship you have established with your local bank. Relationships matter. Treat them well and you will be rewarded. This is especially true if you are dealing with a local neighborhood bank or credit union. Avoid using the ATM machine. Go to a teller to withdraw cash or deposit checks. Avoid times when many people are there. If possible, you want to be the only one there. You want to be noticed. Make it a point to become a known face. Many branch managers are eager to know their customers personally. Do not resist. It can make a big difference.
What if you have already messed that up? Maybe you have overdrawn your account a few times; written a check without having sufficient funds on deposit. If you have, it is not too late to fix it. Simply resolve to be more careful and time will heal the damage.
Big national banks have big marketing departments whose job it is to identify new customers. They do all kinds of research to find out who they are and how to reach them. Everybody knows that college graduates make more money than high school graduates. Therefore, it is no surprise college students are inundated with credit card offers, so if you are one of them, getting your first card should be easy.
If you are not, there is still cards available for you. They are called secured cards. They are not ideal, but they do provide a way for you to prove how trustworthy you are. They are also a way for you to protect yourself against yourself if you are having trouble controlling your spending.
To get a secured card, you must typically first deposit a sum of money into your account. There is one case where it can be as little as $49. Most however, have minimums of $200 or $500 and that will also be the limit of what you can spend. In all other respects, secured cards function just like regular cards. Some require a monthly fee. Some give you cash back. Read the card agreement carefully before committing. There are some really bad ones out there. The really important part to look for is whether they will report your on-time payments to the major credit bureaus because that is a major factor in how your credit score is calculated. A secured card can be an excellent stepping stone towards a regular card. The best ones will monitor your behavior and automatically convert it to a regular card after some time has passed. One feature in particular to look for is credit score monitoring. Some print the FICO score right on the first page of the monthly statement for free. You can also pay to get the score, but why would you do that if you can get it for free?
Maintaining Your Credit Score
We have looked at the importance of your credit score and how it may be relevant in other areas of your life. When you have to make large purchases such as a house or a car, this can become vitally important to you and can save you lots of money over the life of a mortgage for example.
You may have seen advertisements from people who will promise to boost your score tremendously and instantly - for a fee, of course. The reality is that only one thing really matters, consistent, on-time payments.
Some experts say that there are a couple of other things you can do to give your score a boost that make sense to me. If you do not use your credit, nobody will know if you will actually make payments on time, so using your new card at least a little is helpful. Try to stay within about 30% of your available credit, though.
You can also unintentionally harm your credit score by applying for credit you do not need. Let some time pass, perhaps about a year or so, before you apply for a loan or another credit card. Ask for an available credit increase on your existing card instead. Some lenders will offer to do that on their own based on your use pattern.
Things to Avoid
You may also encounter pre-paid cards or debit cards among the offerings. Avoid them. They do not report to credit bureaus and will do nothing for you in building your credit score and most come with exorbitant fees.
Did you notice that at no point have I talked about the interest on your new credit card? That is because, if you adhere to my first rule of credit card use, it will be irrelevant. My first rule of credit card use says:
Never carry a balance. Always pay in full and on time.