When it comes to the world of credit cards, you’re a complete newbie. You’ve never applied for a credit card before and you’re not sure where or how to land a good deal. This guide will help you get started.
Why having a credit card is a good idea
A credit card is an incredibly convenient and useful way of paying for goods and services from merchants from all over the world.
With a credit card, you can reserve a hotel room, rental car, or plane ticket or shop online with ease. You can use your credit card to pay for routine monthly expenses, such as groceries, gas, dinners out, or pay a single bill at the end of the month.
Why establishing a good payment history with a credit card is a great idea
Having a good credit record impacts your whole life. With good credit, you’ll be approved for lower interest rates when you apply for a car or home loan or even another credit card. And with good credit, there’s a very good chance your auto insurance premium will be lower since more than 90 percent of auto insurance companies use credit data when determining insurance rates and terms for customers.
A potential employer may check your credit report to see if you are responsible about handling your financial obligations. Landlords and rental agencies often pull a copy of your credit report as a part of the review process. Electricity and cable and other utility companies may check your credit report when determining your rates. Even a cell phone company may check your credit before granting you a service contract.
A great way to build up a good credit record from scratch is by being a good credit card customer. Use your card and pay your bill on time each and every month, and slowly but surely you’ll establish a sound payment history.
Before you can build a solid payment history, you’ll need to apply for and be approved for a credit card.
Where to shop for your first credit card
Wondering where to start in your hunt for your very first credit card deal? Why not start with your bank or credit union? Your bank already knows you. If you’ve been a good bank customer, there’s a good chance the bank will be happy to take you on as a credit card customer as well. Small banks and credit unions in particular may be more comfortable offering a credit card to a customer with little or no credit. So definitely take a close look at what kind of credit card deals are available from your local bank or credit union. Stop in a branch, call, or check online.
Have the credit card companies found you? Are you getting credit card offers shoved in your mailbox week after week? These paper, “snail mail” offers make it easy to compare deals. In big bold print is the hook — the introductory rate, the rewards, whatever they can think of to entice you to choose their card. On the back, you’ll find the important details such as fees, interest rates, and finance charges.
For more credit card offers, look online. You can shop and compare credit cards today using our interactive service. Be sure to click through to the important terms and conditions associated with the card before applying. All those details matter.
It’s a good idea to print the terms and conditions and compare them with the snail mail offers you’ve been getting in the mail and any deal your bank or credit union may offer.
How to compare credit card offers
Once you have tracked down a few credit card offers, you’ll want to study the terms carefully.
Does the card come with an annual fee? What is the annual percentage rate? Is there an introductory rate? How long does it last? What happens if you pay late? What kind of late fee will you pay? Will your interest rate shoot way up if you miss a payment?
Some credit cards will boost your interest rate if you miss even one payment; others will wait until you pay ate on two payments before slamming a penalty interest rate into effect. It’s all in the fine print of the card offer. So get out that magnifying glass and take a look. Once you’ve looked over the offers, pick a favorite and apply.
Be a good and loyal credit card customer
Once you’re approved for your first credit card, stick with it. Paying on time with the same credit card month after month and year after year is a great way to establish credit history and build a rock-solid payment record.
Now, if your first credit card comes with a hefty annual fee, you may want to try a different strategy. After a year of on-time payments, there’s a good chance you’ll be approved for a card with no annual fees, so feel free to shop for a better deal. When you land one, inform your old card company that unless they waive the annual fee, they’re going to lose you as a customer. If they don’t waive the fee, cancel the account.
Other types of cards to consider
Store cards – These cards are offered by department and specialty retail stores. It’s hard to go shopping at a mall without a clerk asking you if you’d like to save 10 percent by applying for a store card. While fairly easy to get, these cards don’t carry as much weight as regular, unsecured credit cards when it comes to building up your credit history. But they’re better than nothing and they can be a good starting point for tiptoeing into the world of credit.
Secured Cards – If your lack of credit is preventing you from qualifying for an unsecured credit card, you may want to consider a secured credit card. With a secured card, your credit limit is based on a security deposit that you send to the credit card company.
Your credit limit typically is one to three times the amount of the security deposit. If you sent a credit card company a check for $100, you’d receive a credit line of as much as $300.
After about a year of on-time payments with a secured card, you’ll be ready to apply for and be approved for an unsecured card. Once you land a deal on an unsecured credit card, you can close your secured card account and get your deposit back.
Sharing someone else’s credit card account
Is it a good idea? Let’s say a very credit-worthy parent, spouse, or friend is willing to take you on as an authorized user on their credit card account. Should you take them up on their offer? As an authorized user, you would be given your own card linked to another person’s well-established account and payment history. Doing so used to give a nice boost your credit score, but not anymore. In 2007, Fair Isaac Corporation announced that authorized user accounts will no longer be considered in their credit scoring formula. This change took effect beginning in September 2007. So it’s more important than ever to establish your own credit history by getting a credit card in your own name.
Find Out Where You Stand
You can check your credit score each month using Credit.com’s free Credit Report Card. This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems. In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.