So, you’ve never had a credit card and want to change that.
Chances are you’re a young consumer making initial personal finance steps and realize that after you apply for and receive a credit card, you’ll be in a stronger financial position.
The fact is, a credit card offers myriad benefits, along with several risk scenarios. It’s advisable to know both the rewards and the risks of credit card ownership before you apply for a card.
Credit card benefits
They’re convenient. A credit card enables users to buy goods and services now and pay for the purchase later. That gives cardholders both flexibility and convenience.
They help build credit. A credit card from national issuers, used wisely, can help build good credit, as credit scoring agencies emphasize credit card management when calculating credit scores.
They provide cash rewards. Many credits cards come with rewards attached. Rewards can come in various forms, including travel rewards on flights, hotels and auto rentals, and cashback on purchases, and access to high-profile events like concerts and ballgames.
They’re effective fraud fighters. Credit card companies have done a good job building fraud-fighting features in credit cards. Most cards now have fraud alerts, which immediately lets cardholders know about suspicious purchases.
Credit card risks
You can easily overspend. If you spend recklessly using a credit card, you can easily accumulate substantial debt that you may not be able to repay.
When you accumulate debt, you accumulate interest. Credit card companies charge interest for card usage, which can mount up quickly.
Penalties for paying late. If you can’t pay your monthly credit card bill on time or if your balance exceeds your card credit limit, you’ll incur late penalties, adding to your credit card debt total. You’ll also hurt your credit score.
Preparing for your first credit card
Don’t apply for a credit card until you’re financially prepared to do so.
That means setting the table with some preliminary steps to take before you apply for a credit card.
Know your credit score. When you check your credit score, you’ll get an idea of your chances of approval, what kind of card you can afford, and have a sense of what interest you’ll pay on the card.
Get a free copy of your credit score once a year at AnnualCreditReport.com. Each of the three major credit scoring agencies (TransUnion, Equifax, and Experian) provides a free credit report through that website.
Each report provider also makes a free copy of your report available on their own websites:
Know what kind of credit card you need. Everyone’s financial needs are unique, especially first-time card applicants.
If you travel frequently, a rewards credit card might fit your needs. If you value getting deals and discounts, a cashback credit card might seal the deal. Or, maybe you don’t want a card with an annual fee. Do your research, ask around to people you trust, and find the best credit card before you apply.
Where should you apply? By and large, applying for a credit card means applying directly with the card provider -- either on the company’s website, over the phone or via mobile app.
Check with your bank for a good credit card deal. Your bank already has a relationship with you and, if you’ve avoided overdrafts and other negative banking issues, that could help getting approved for a credit card.
Applying for your first credit card
Applying for your credit card is a simple process, but there are some factors that require special attention.
Fill out the form correctly. When you do apply for your first credit card, the following information is required:
- Name, address, date of birth and contact information (phone and/or email)
- Social Security number
- Estimated annual income
- Primary source of income
- Type of residence (whether you rent or own a home, or you live on campus at college)
A good rule of thumb is to be as transparent as possible on your application. It will boost your chances of approval, as card providers value thoroughly prepared credit card applications.
Read the card contract language before you hit “send.” Credit card applications are loaded with fine print, and it’s up to you to discern key information on card factors like fees, interest rates, fraud prevention, and rewards programs rules, among other issues.
Curb your number of credit card applications. Once you’ve sent your application and sent it out, don’t apply for too many other cards. That’s because creditors view multiple card applications as a sign of potential increased credit card usage, which can drive your credit score downward.
What to do if your credit card application is rejected
Being rejected for a credit card can sting, but it’s certainly not a long-term financial deal breaker.
To get a foothold on recovering, address the specific issue cited in the card company letter citing the card rejection, which has to be sent to you in 30 days or less. If it’s a low credit score issue, for example, start working diligently to boost your credit score with on-time payments and fewer credit applications, for starters.
What to do after you're approved for a credit card
Once you land your first credit card, use it wisely.
You should also read up on the importance of a modest credit card balance like keeping your card balance at about 30 percent of your card credit limit and full and on-time credit card payments.
These “best practices” will help you be a good steward of your credit card and lead a healthy, long-term credit care experience.