Getting your first credit card is a milestone and takes you one step closer to being a financially responsible individual. Credit cards have made our lives so easy and have become so popular in the past 2 decades. Additionally, they offer various rewards and offers that make it impossible to resist their allure.
The option of paying a little later if the funds are a bit low in the account is forever tempting, as it means never having to say bye to your favorite pair of shoes or a much-needed vacation. Shopping and dining at the best places are just a swipe away now.
But applying for the first credit card can be a little daunting, as there are numerous credit cards to choose from. With that comes the responsibility of keeping track of your finances. Before someone applies for a credit card, keeping in mind that credit cards are a financial tool and can help in building a strong credit if used responsibly.
Nowadays, everyone has a little idea as to how a credit card works but before you apply for credit card, they should understand the finer details of owning a credit card. Getting to know about these details can save a lot of time and money. It’s reasonably easy to apply for credit card but we have compiled a checklist that ensures you are all set up before taking the big leap and apply for credit card.
If you are applying for a credit card for the first time, keep these things in mind:
- Choosing the correct Credit Card
As a first time cardholder, it can be difficult to qualify for the premium range of credit cards that the financial institution offers. These high-quality reward cards with amazing discounts and perks are offered mostly to people with high credit scores. These top credit cards are available for people with a credit score of more than 700 and longer credit histories with some specific fixed income.
For a newcomer, it is suitable to start with smaller credit cards that do not focus on credit history. Once the credit score starts improving, the credit card company will automatically offer a better credit card option. Some of these cards are not a bad option for a newcomer as they don’t charge any annual fees and offer decent rewards as well.
Some of these credit cards are as follows:
- Student credit card – it is mainly offered to college students with some perks
- Secured credit card – it requires negligible credit score but some amount of cash deposit
- Pre-qualified credit card – it doesn’t necessarily mean that you will get the credit card, but chances of qualifying are high
- Fair credit score card – usually given to people with mediocre credit score
- Rates and Fees
Credit cards have predefined rates and fees, card providers are required to share this information with the customers. There are different types of fees & rates applicable to a card such as:
- Annual Fee: cardholders are required to pay this fixed amount every year
- Annual Percentage Rate (APR): this is the interest rate that needs to be paid against balances that are carried from month to month. Different banks have different rate policies on types of money transfer
- Late Fee: the fee paid if the payment is late or the minimum amount is not paid on time
- Maintain Credit Score
The best time to start building the credit score is as soon as possible. The first credit card plays a crucial role in maintaining the credit score that will be useful in the future. The card activities are recorded and the score is allotted accordingly. Late payments and exceeded deadlines are bad for credit scores.
It is advisable to always pre-pay every month and stay below spending limits. The credit score can also be easily tracked to check your progress. A good credit score ensures perks and attractive offers in the future. The initial days can make or break the credit.
- Fees and Interest can be avoided
A lot of credit cards don’t charge an annual fee, those who do charge have a fixed amount spending which the annual fee is waived off. Avoid exceeding spending limits to save up on the over-limit fees.
To avoid paying any interest, fully pay the amount every month. If some of the amounts are carried to the next month, then interest needs to be paid.
- Paying late can be expensive
Missing the due date to pay the bill can come at a high-price as late fees vary with time:
- Late fees: it is generally settled once a year and subsequently keeps on increasing
- Penalty APRs: are applicable to only limited card providers. They can shoot up the interest by 30% on new transactions.
- Damage to credit: paying late doesn’t directly impact credit. But a late payment record reflects badly on the credit scorecard.
Before you apply for credit card do note that owning a credit card comes with huge responsibility and having a fair understanding of the same can save up on money as well as help make a good credit score.