Do I Need A Credit Card
While you don’t need a credit card, there are several reasons why getting a credit card is a good idea:
- Building credit: It’s much harder to build your credit history without a credit card. A limited credit history can affect your life in many ways. The most obvious is that you’ll have trouble getting approved by lenders if you ever want to borrow money. In addition, it can lead to you getting rejected when trying to rent a home, and in many states, it can even result in higher car insurance rates.
- Security: Credit cards are the best payment method from a security perspective. If a thief makes fraudulent charges with your credit card, you can contact the card issuer to get the charges removed and receive a new card. The most you can legally be liable for with credit card fraud is $50. And most card issuers even have zero-liability policies, which means you won’t be liable for fraudulent charges at all.
- Rewards: Many of the best credit cards offer cash back, travel points, or some other form of rewards. This allows you to earn value back on the money you spend.
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.
A Guide To Choosing Your First Credit Card
There are several different credit card types. Each is best suited to a particular kind of borrowing andchoosing the right credit card to suit your needs is important.
You might be looking for one with low interest to help you pay off current debts. Or perhaps you want one with rewards that suit your lifestyle.
If youre a first-time borrower looking for advice on how to get a credit card, then a credit builder card might be a good option for you.
If this is going to be your first credit card, youre most likely to be approved for a.
These make a great first credit card, UK wide. Theyre also good for people with poor credit who are looking to improve their credit rating.
As you consistently spend and repay your credit card, you’ll create a record of a responsible borrower. Once you have a long enough credit history you may be able to get another type of credit card.
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How To Apply For Your First Credit Card
Eligibility requirements can vary, depending on the type of credit card you want to apply for.
To apply for a credit card, you need to be over 18 and a UK resident. You may also need to have a regular income, over a certain amount.
Once youve decided on the right credit card for you, its important to become familiar with the terms and conditions and eligibility criteria. If your application is declined, it can harm your credit score.
Most credit card providers allow you to apply online or through a mobile banking app.
Apply For Your First Credit Card
Start With A Low LimitWhat kinds of things should you be looking for in a credit card? Well, first I would suggest looking for cards with a fairly low limit to start. That will keep your total amount due within a manageable range, no matter how much you spend. When youre new to the credit world, its always a good idea to start with less. Its easy to become overwhelmed with debt as it adds up, in addition to any fees or interest you will be charged. Understand Interest RatesThis brings us to my next point: youll want to research what your interest rate is and what kinds of annual fees youre going to be looking at. Every card has their own set of rules when it comes to fees, interest, and when payments are due. So, when youre researching cards, make sure to take an in depth look at all of the fine print associated with your card. You dont want to be met with any surprises when you get your first bill.Most credit cards will vary anywhere from ten percent to 30 percent interest on your purchases ten being quite low for a credit card interest rate and 30 being quite high. For your first credit card, around 18 to 25 percent interest is about normal, give or take a percent or two. As far as fees go, some cards have no fees and others could have up to a $100 fee each year. Thats quite high, so Id try to stick with something that is 50 dollars or less, which is not hard to find.
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Choose A Card That Earns Useful Rewards Based On How You Currently Spend Your Money
A good rewards card shouldn’t alter your spending in any way. Rather, it should reward you for what you already do. Those rewards should be flexible and useful to you. Even if a card offers a nice rate of rewards, if those are rewards that aren’t convenient and useful for you to spend, they don’t really matter.
In general, cards that offer direct cashback or offer direct discounts at the retailers you already use are the best options, particularly for new users who aren’t trying to game the system.
A Credit Card Is Not An Emergency Fund And It Will Fail You In Many Types Of Emergencies
First, if you use a credit card in an emergency, that bill is still going to arrive. If you’ve paid for something that you can’t actually afford, you’re not going to be able to pay off the card. You’ll be carrying a balance, and the interest will keep devouring your money while you get nothing in return.
Second, there are a lot of emergencies where credit cards don’t help. Theft is one. Identity theft is another. What do you do in those emergencies? You should strive to have a cash emergency fund sitting in a savings account at a bank where you can access it if you need it.
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Stay Well Below Your Credit Card Limit
Maxing out your credit cards is bad for your credit score, too. So how much should you really spend? A good rule of thumb is to only spend 30% of your available credit. This means that if you have several credit cards with a collective limit of $10,000, you should make a point to never have more than $3,000 in charges at a single point in time.
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Pay In Full Every Month
Speaking of your credit card payment, you’ll also have several different payment options. Here’s a quick rundown of your options and what they mean:
- Minimum payment: The minimum amount you can pay to stay current on your card.
- Statement balance: The balance when your most recent statement closed. For example, if your statement closes on the 20th of each month, your statement balance would include all transactions made on your card before the 20th.
- Current balance: The current balance on your card. This includes your statement balance plus any transactions you’ve made since the last statement period closed.
- Custom amount: A payment amount of your choosing.
It’s always best to avoid . How can you do that? It’s simple: Pay either your statement balance or current balance every month.
If you pay the full statement balance, then you won’t be charged interest on your purchases. You can also pay the current balance. This balance simply includes the charges that posted to your account after the statement period closed, which means they’re technically part of your next statement.
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Your First Step In Building Credit May Require You To Make A Deposit
by issuing you a line of credit that you can use to make purchases. You are then required to pay back the loan ideally in full at the end of each billing cycle . But because you are just starting out, credit card issuers prefer to have a way to pay back your credit line until you prove a history of trustworthiness.
Until credit newbies are able to get a regular credit card card, they start with a secured card.
The two types of cards are nearly identical, but with a secured card you are required to make a minimum deposit to receive your credit limit. Secured credit cards are geared toward those with limited or no credit history at all. Since your limit is equal to the amount of money you deposit, which is typically $200, they help you learn how to get in the habit of borrowing and paying back. They are a good way to establish credit and they also help raise your credit score.
There are a handful of good options when it comes to the best secured credit cards out there, but CNBC Select ranked the Discover it® Secured Credit Card as the best starter card because cardholders can earn cash back, receive a generous welcome bonus, use the card overseas without incurring added fees and more all for no annual fee.
Heres What You Should Know About Getting A Credit Card At 1:
- The only way to get a credit card at 15 years old is as an authorized user.
- An authorized user can get a credit card, if the primary accountholder allows it. However, the primary cardholder, not the authorized user, is ultimately responsible for paying the bill.
- Reloadable debit cards, prepaid cards and gift cards wont give you a loan or help you build credit, but they can be useful to have for emergency spending purposes.
Discuss the basics of personal finances and credit cards with any minor you are considering adding as an authorized user and make sure he or she understands the rules.
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Limiting Your Credit Card Spending
Every credit card comes with a credit card limit. For rule of thumb: try not to spend over 30% of your overall to ensure that your spending habits dont negatively affect your credit card score. Consider using your credit card to purchase lunch or a tank of gas and then pay it down at the end of the month. This is a great way to build your credit score and establish good financial habits with your first credit card.
Things You Need To Know About Credit Cards
There are some important points you need to keep in mind before applying for and using a credit card:
- The credit card provider will carry out a hard credit check when you apply. This will include checking your credit file. If youve got a good credit rating, this will improve your chances of a successful credit application. It could also give you access to cards offering the lowest interest rates and/or promotional offers. A hard credit check will show up on your credit report and will have the potential to affect your credit score.
- Some credit companies will perform a soft check before you apply. This type of credit inquiry will have no impact on your credit rating and will not show up on your credit report. It provides an indication of whether your credit application will be successful.
You can check your credit score for free by using the following websites:
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Managing Your First Credit Card
Before you start using your first credit card, keep in mind that you should aim to clear the full credit card balance each month.
That way, you can avoid paying any interest and still be able to take advantage of the cards benefits, including building your credit score.
Where possible, aim to set up a direct debit payment to clear the full balance each month. This will avoid the need to manually pay off the credit card balance and reduce the risk of missing any payments.
A Security Deposit Makes A Credit Card Easier To Get
If youre having trouble getting approved for your first credit card say, because you’re starting out with no credit at all try a secured credit card.
Secured credit cards are designed for people with damaged credit or no credit. To open your account, youll first need to put down a cash deposit. Your credit limit is typically equal to your deposit. Minimum deposit requirements range from $200 to $500, depending on the card. Most secured cards allow you to deposit more to get a higher credit line.
Falling behind on payments could mean losing this deposit. However, if you always make on-time payments and spend well below the card’s limit, you could establish good credit within a matter of months. At that point, your issuer might upgrade the account to a regular unsecured card, or you might apply for an unsecured card and close the secured card in good standing. In either case, your deposit would be refunded.
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Keep Your Credit Utilization Ratio As Low As Possible
Your is the amount of credit you use on a regular basis compared with the amount of credit you have access to. To calculate it, look at how much you charge on your credit cards each month, then divide that into the total credit limit on all of your credit cards. So if you typically charge $2,000 each month, and your total credit limit across all your credit cards is $10,000, your utilization ratio is 20%.
You want to keep your ratio under 30%and for the very best scores, under 10%. If your utilization ratio is too high, there are two ways to improve it: Lower the amount of money you put on a credit card each month, or increase the amount of credityou have available to you.
The best way to use credit cards is to pay your balance off each month. That way, you’ll never incur interest charges, keep your utilization as low as possible, and build a positive record of making payments on time.
Understand How Credit Cards Affect Your Credit
When you apply for a credit card, your credit is checked. The bank or lender wants to know that you have a good history of paying back any money that you borrow and thats what your credit score reflects a good, fair, or bad history of borrowing money. If youre deciding on your first credit card, you likely have not borrowed any money yet. In that case, some credit cards may be hard to be approved for, especially if youre trying to get a higher limit or one with less interest and fees.Watch Out for Too Many Credit ChecksAs such, youll need to know that one check on your credit isnt going to make a difference, but several of them in a short period could have a negative impact on your credit. Applying for multiple cards in order to get approved for one isnt a good strategy. Most cards that are easier to become approved for will tell you so. Again, most of them will be a lower limit card and you might have to deal with a little bit higher interest and/or higher fees per month.Theres also another option, called a secured credit card, that is great for those new to credit. You put down a deposit, usually about $200 to $500, the bank holds that money, and then they open up a line of credit for you. You spend the money just like a regular credit card, but the bank always has that collateral in order to protect you and yourself. These are usually easy to be approved for and are fantastic when youre first learning about personal finances, budgeting, and credit.
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Read Your Credit Card Statements And Check Your Credit Reports
A credit card statement is a summary of the monthly activity on your credit account. You can typically review it via your credit cards mobile app or your online account. You can also get paper statements in the mail if you prefer that.
Each statement includes information such as your previous account balance and any fees that have been assessed on your account.
Seems pretty straightforward, right? Well, not always. Reviewing your credit card statement gives you a chance to see if there are any errors, such as a mistaken or suspicious charge. This could include things like a purchase made at a store youve never shopped at or charges made in a city you havent recently visited.
You should also review your statements to check for other issues, like a payment that didnt go through. If your credit company reports that youve missed a payment, it could have a significant negative impact on your credit scores.
The Federal Trade Commission recommends saving your receipts so you can check for any inconsistencies on your credit card statements and more easily resolve them.
Sometimes problems on your credit card statements are the precursors to problems on your credit reports, so its better to identify and deal with issues early before they begin to affect your credit reports and scores.