Four Things Worth Considering Before Applying For A Credit Card
Theres a wide selection of different credit cards that you could apply for, but its usually better to consider your options and do a few checks beforehand so you know youve chosen the right card for your situation. Here are a few things to bear in mind before you choose to apply.
- Know your credit score. Your credit score is useful for banks and lenders, as it shows them how much credit you have available and how much you routinely use. This gives them an idea how responsible you are with repayments. Credit scores are available from UK credit reference agencies: Equifax and Callcredit. If youve not checked your score before, heres how to check your credit score.
- Better score, better offers. A higher credit score could mean youll have the more options when applying for credit cards. For example, you could be offered a card with a lower APR, meaning youll pay less in interest if you carry balance. Find out how to improve your credit score.
- Be selective with applications. Making too many credit applications in a short space of time could make credit reference agencies think youre facing money troubles. If your credit rating is lowered as a result, this could mean future credit applications are less likely to be successful.
- Use eligibility checkers. Before jumping in with both feet, you can use an eligibility checker to see if youre likely to be accepted for certain cards. This kind of soft search doesnt leave a mark on your credit history.
How Does A Credit Card Work
Credit is money you borrow, whether its through a credit card, loan or overdraft.
When you apply for a credit card, the lender runs a credit check on you to see how risky they think you are as a borrower.
If they approve you for a credit card, theyll give you a credit limit. Your credit limit is a set amount of money you can access to pay for goods or services.
You pay back the money you borrow back each month, either in part or in full, with interest added if you have an ongoing balance. Theres a minimum amount youll have to pay, but its best to pay off the whole balance because then you dont pay interest.
How To Improve Your Chance Of Being Accepted
There are a few simple steps you can take to increase your chances of being accepted for a credit card. These should be the first steps you take before you look further into how to get a credit card.
Registering to vote: Getting on the electoral roll provides proof of address, which can boost your credit score
Getting a job: Even if you get a part-time job, a regular income will show lenders that you’re able to repay credit. If youre not working, you might struggle to get credit.
Opening a bank account: Managing a current account can help you improve your chances of being accepted. By setting up direct debits and putting away savings, youre showing lenders that you’re financially responsible.
Pay bills on time: If you can show youve been repaying bills on time for at least six months, lenders will see this as proof of financial responsibility. It might help convince them that you can be trusted to pay back the credit.
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Choosing The Best Card For A First
Consider applying for a Secured Credit Card or a Student Credit Card
With secured cards, your credit line will equal the amount of the required one-time cash deposit after you are approved. The difference between this and a debit card is that your on-time payments help build credit with responsible use.*
Also consider a student credit card with a low annual percentage rate and a rewards program. You could earn cash back on purchases that will come in handy when its time to buy books.
Learn about credit card rewards
Student credit cards with rewards are just one type of the hundreds of rewards cards available. With so many different rewards cards to choose from, it can be challenging to find the right card. Since rewards are earned based on the amount of your purchases, identify what you want out of your credit card and apply for cards that make the most sense for your lifestyle and spending habits. For example, Discover it® Chrome gives you 2 percent cash back on gas stations and restaurants on up to $1,000 in combined purchases each quarter.*
Be sure to pay attention to annual fees when evaluating rewards card offers. If you find yourself carrying a balance consistently, you may want to switch to a non-rewards card with a lower APR.
Choose a credit card you wont want to cancel
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Choosing A Retail Card For Your First Credit Card
Another option for your first credit card is to apply for a retail or store card issued by a major retailer. These types of credit cards, which may offer some rewards, are meant to be used primarily at the stores that issue them, though sometimes they can also be used elsewhere.
Retailers offer these cards as a way to encourage consumers to buy their products and spend money at their stores. As a result, retail cards generally have less stringent credit requirements for approval, making them an option for consumers with little or no credit history.
While most retail cards can only be used to make purchases at specific stores, most of the cards are backed by a major card issuer and your payment history and balances are reported to one of the three major credit bureaus.
Retail credit cards can come with certain pitfalls, however. They generally carry much higher interest rates than other cards, so you will want to be mindful of not carrying a balance. Retail cards also typically come with lower credit limits, so it’s important to pay attention to your . Utilization is one of the most important factors in calculating your credit scoreaccounting for 30% of your FICO® Scoreand it is recommended to keep your total ratio below 30% of your total combined credit limits .
Paying Late Comes At A High Cost
Missing your due date can get expensive quickly. Depending how late your payment is, you could face:
Late fees. The legal limits on these fees are adjusted annually. But generally, the first time costs well over $20, and subsequent violations can be close to $40.
Penalty APRs. Most credit cards no longer charge penalty APRs, but some do. A penalty APR kicks in when you pay late, and can increase your interest rate to 30% or more right away for new transactions. And if the payment is more than 60 days late, that penalty APR can also be applied to your outstanding balance.
Damage to your credit. Paying a day late wont hurt your credit. But if you pay 30 or more days late, your payment will also be recorded as late on your credit reports, hurting your credit scores.
Consider setting up automatic payments from your bank account. Or, if youre worried about overdrawing your account, note your due dates on a calendar as a reminder.
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Getting The Most From Your First Credit Card
Think of a credit card as a tool finding the right one can make things so much easier. Just like you make sure you have the best tools available before you start a DIY project, you should consider whether a credit card suits you before you apply, including its features, fees and charges.
Once youve chosen the right card for your situation, you can use online tools, like Barclays Money Tools , and a bit of smart budgeting to take advantage of all the benefits it has to offer.
Getting Smart With Your Card
Having a great relationship with credit means being smart with your credit cards, and understanding how they work. At CreditCard.com.au, we want everyone to find the best card for their needs, to then use them wisely. Whether youre applying for your first credit card, or youve had a number of credit cards in your name, you can hone your knowledge at our sister site, .
With seven courses to choose from, this 100% free online course provides essential information about how credit cards work, and how you can make them work for you. Using this info plus the tips above you can then check out the range of cards available here on CreditCard.com.au to find the one that will best suit your needs. Dont forget to browse the other articles here as well for even more info!
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Shop Around Before You Apply
There are a handful of no annual fee credit cards out there, which are usually a good starting point for your first regular credit card.
Keep in mind that every time you apply for a credit card and a lender checks your credit, it will be noted as a hard inquiry on your credit report. These hard inquiries can ding your credit score by a few points so it’s worth doing your homework so that you reserve your hard inquiries for only the cards you actually want.
And if you’re in school or planning to go back, college student credit cards are a smart choice for students looking to establish credit. These cards are specifically geared to students and they typically offer lower credit limits, which is good for anyone just getting started. And with the Discover it® Student Cash Back, students can still earn cash back and enjoy a introductory APR period.
Minimum Income Or Assets
The issuer wants to know whether you have access to enough money to pay your credit card bills. More specifically, credit card issuers are required by law to consider whether youre able to make the minimum monthly payments.
If you earn money outside a full-time job, include it on your application. And as long as youre 21 or older, you can include your household income, including income from your spouse or partner, on your credit card application.
Even being unemployed doesnt automatically disqualify you from getting a credit card.
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You Can See The Rates And Fees Before Applying
Credit card issuers are required by federal law to publicly disclose certain terms, such as interest rates and fees, before you apply. These are displayed in whats called a Schumer box, a table that can usually be found on a credit cards application page online or on a slip enclosed in paper applications. The Schumer box includes the card’s:
Annual fee, or what it charges cardholders on a yearly basis.
Foreign transaction fees, or fees charged when making purchases outside the U.S. typically, 3% of the amount charged.
Late fees, which are charged when you pay late by even a day or if you don’t pay at least the minimum amount due.
Of course, there’s some information you wont get until after you apply. For example, in most cases you won’t know what your credit card limit is until your application is approved.
Who Qualifies For A Credit Card
First, you need to be at least 18 years of age to get a credit card, thus being responsible for any additional charges or repayments. If youve enrolled at a university, for example, you have an opportunity to obtain a student credit card.
Being authorized as a minor on one of your parents credit cards is another option for becoming a first time credit card user. Most major card issuers allow minors to become authorized users and, as such, can make purchases with a credit card but are not responsible for the payments. Some card issuers even allow children from 13 years of age to be authorized users.
Proof of Income
Even though income is not a part of your credit report, issuers tend to ask about it to make sure you have sufficient income to pay your credit bills and because they are required by law to obtain such information.
The income you present on your credit card application will be used to see if you qualify for credit and how much credit might be extended to you. Those over 21 years of age need to report their personal income and income of their spouses. Additionally, those aged 18 to 20 years old should provide card issuers with independent income, including wages from a part-time job or student loans.
At the age of 21, if you decide on opening a credit card account while married yet unemployed, you can use the household income of your spouses wages to qualify for a credit card.
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Always Make Payments On Time
Once you have a credit card, make sure to pay your bill on time every month. Your payment history is the single most important factor in your credit score, accounting for 35% of your FICOÂ® Scoreâ .
Keeping your credit utilization ratio low is another way to build good credit. This ratio refers to the percentage of your available credit you’re using. If your credit card has a limit of $200 and you’re carrying a balance of $100, you’re using 50% of your available credit. Maintaining a credit utilization ratio below 30% of your credit limit will help to boost your credit score. Paying your balance in full each month helps tooâand will also prevent you from accruing interest on your purchases.
Do you have any outstanding student loans? Paying those bills on time can help improve your credit score. Student loans are installment credit, while credit cards are revolving credit. Having a mix of both types of credit helps to increase your credit score. Finally, if you pay your own cellphone bills or utility bills, consider signing up for Experian Boostâ¢â , a free service that adds on-time payments for those services and more to your credit report, potentially helping improve your FICOÂ® Score.
Requirements And First Steps
As basic requirements, most credit card providers will only let you apply for their cards if you:
- at least 18 years old
- live in the UK
- are employed
- earn more than a certain amount, such as £7,500 a year.
In addition to the basic requirements, theres another important step you should know about: To increase the likelihood of getting accepted for your first credit card, you should start laying the groundwork well in advance. The key is to ensure your finances are in the best possible shape before you apply:
- Check your credit score: Lenders use your credit score to check how much credit you have available and how much you routinely use. This gives them an idea of how responsible you are for repayments. Credit scores are available from UK credit reference agencies such as Equifax, Experian and Clearscore.
- Use eligibility checkers: Before applying for a first-time credit card, its worth using an eligibility checker to see if youre likely to be accepted for certain cards. While applying for a credit card will show up on your credit history, this type of soft search doesnt leave a mark on your credit file.
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Applying For A Student Card As Your First Credit Card
Student credit cards are designed for students and can be a good option for young people with little or no credit history. These cards can help students establish a credit history and build credit scores while learning how to responsibly manage their finances.
Student cards are generally backed by major credit card issuers, and your payment and account information is typically reported to one or more of the three major credit bureaus.
What Is The Best First Credit Card
When youre ready to start building credit, you might be wondering what the best first credit card is. The answer to that question depends on a few different factors.
If youre looking for a card with low-interest rates and fees, then youll want to investigate cards from major banks and credit unions. If youre trying to build credit quickly, then you might want to consider a secured credit card. Finally, if youre looking for rewards, then youll want to find a card that offers cash back or points for every purchase you make.
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What Do You Need To Qualify For A Starter Credit Card
In order to qualify for a starter credit card, youll need to have a steady income and a good credit history. Most starter cards have a low credit limit, so its important to show that you can responsibly use credit before you are given a higher limit.
There are a few different types of starter cards, so you can choose one that best suits your needs. For example, some cards have no annual fee, while others offer reward points for every purchase you make.
Here Is How You Choose A Credit Card For The First Time:
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