When you’re looking for your first credit card all the choices available can seem overwhelming. There are so many different options to choose from and you need to find the card that best suits your needs.
When I got my first credit card I didn’t take a strategic approach at all. Instead I just applied for the first three credit cards offers that came in the mail and got stuck with high annual fees, high interest rates, and no perks.
You don’t want to do the same. Here’s what you need to look for in your first credit card.
Why Do You Want the Card?
Your first step in choosing your card is knowing why you want the card in the first place. Here are some of the most common reasons.
Building Credit – Credit cards can be fantastic tools in building credit. If this is the reason you’re wanting the card look for something with no annual fee. If you’ll be paying the balance in full each month the interest rate won’t matter.
Making a Large Purchase – If you’re looking for a card to make a large purchase one thing that’s going to be important to you is the credit limit. As a first time card owner it can be hard to find a card with a credit limit over a few hundred dollars. The other extremely important factor you should be looking at is the interest rate. While credit cards in general come with extremely high interest rates it’s going to be very important for you to find as low of an interest rate as possible. If you don’t have a plan for paying back your large purchase it will cost you greatly just in interest charges.
Earning Rewards – Different credit cards come with different rewards while some come with no rewards at all. You can earn cash back, free trips, airline points, hotel stays, and gift cards.
Here’s a deeper explanation of all the various elements you need to look at when choosing your first credit card.
# 1 – Annual Fee
Some credit cards require you to pay an annual fee that can range anywhere from $19-$100. Due to the sheer volume of credit cards available you need to find a card that doesn’t require you to pay an annual fee.
The only exception to this would be if you’re choosing a card solely for the rewards and the potential rewards outweigh anything you’d pay in an annual fee or interest.
When applying for a card read the fine print as some cards won’t charge you an annual fee until the second year of being a cardmember.
# 2 – Interest Rate
Credit cards are notorious for their high interest rates and as a first time card holder you should expect to get an interest rate on the higher end.
You can generally find rates that vary from 11%-30% APR.
If you pay your credit card bill in full each month you won’t have to worry about accruing any interest. If you plan to carry a balance keep it to a minimum and find the lowest interest rate possible.
You’ll also sometimes find credit cards that offer 0% interest for six months or 0% interest for balance transfers for a specific period of time. These introductory offers would be ideal if you plan on making a large purchase and carrying a balance for six months or less.
# 3 – Rewards
There are an unlimited number of rewards you can find on credit cards now-a-days. In fact, “credit card hacking” has become mainstream with some skilled cardholders earning thousands of dollars’ worth of free perks each year.
If you’re brand new to credit cards you need to leave the hacking to the pros.
Look for a card that has the sort of rewards you’re interested in. These can be cashback, flights, hotel stays, or even gift cards. Also look at the redemption terms. Some rewards may have an expiration limit on them.
If you’re signing up for a credit card because of the rewards be sure that you’re paying your bill in full each month. If you’re paying a high annual fee and a high interest rate you’ll be cancelling out all of the rewards you receive. (And maybe even worse!)
Also read: 9 Ways to Get More Credit Card Rewards
# 4 – Other Fees
You should be highly aware of all of the fees that can come with a credit card when you sign up. For instance, if you make a late payment you’ll be charged a fee (typically around $30.) There can also be balance transfer fees, cash advance fees, foreign transaction fees, and over the limit fees.
Read the fine print to see how much the fees are for the card you’re applying.
# 5 – Credit Limit
As a first time card holder chances are your credit limit will be pretty small. If you’re using a credit card to build credit this won’t matter. If you’re hoping to get a credit card to make a large purchase you might be out of luck.
Normally after a year or more of using your credit card and paying on time you can request an increase of your credit limit.
Responsible Credit Card Usage Tips
Credit cards are great when they’re used responsibly but they can wreak havoc on your finances if not used properly. (Ask me how I know!)
Here are some general guidelines on good credit card usage:
Always Pay Your Bill on Time – The biggest factor that affects your credit score is your payment history. Always pay your credit card bill on time, even if it’s only the minimum payment.
Pay Your Bill in Full Each Month – To avoid the high interest rates that come with your card pay your bill in full each month. Only charge what you can pay back.
Have a Plan for Large Purchases – If you’re going to make a large purchase on your card (which should be a last resort) have a plan for how you’ll pay it back. Set a certain dollar amount you’ll pay each month and stick with it!
If you have any other questions about what to look for in your first credit card let me know in the comments section!
Photo Credits: CanStock Photo