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7 Things You Should Know About Your First Credit Card

Getting your first credit card probably doesn’t seem like a very big deal. Pretty much everyone
has one, and using credit cards to pay bills and purchase essentials is second nature to most people. However, there’s more to applying for your first credit card than you might think, and there are some things to consider in preparation.

1. There are two primary types of credit cards: secured and unsecured.

Secured credit cards are better for those who haven’t built a solid credit history – they’re backed by a cash deposit and limit risk for the card issuer. It’s like a prepaid card, but the cash deposit doesn’t run out as you spend.

Unsecured credit cards are the most common type of credit card. You’re assigned a credit limit from your bank based on your income, debt level, and credit history. The bank backs your spending, and you pay it back plus interest.

For those with no or low credit, secured credit cards are usually recommended. You can talk with your financial institution for more information on secured and unsecured cards.

2. You should get a credit card that gives back.

Many cards give you rewards for every dollar you spend. Sometimes, the rewards are points you can directly redeem for cash. Other times, you can redeem points for gift cards and prizes. Look into the different options for rewards credit cards and find one that’s most advantageous to your situation.

3. There may be fees.

Some credit cards have no fees at all, but others do. Most secured credit cards have an annual fee that’s charged if you aren’t spending enough in a certain period.

There could also be balance transfer fees, charged when you move one credit card balance to another. There are also foreign transaction fees when you spend out of country, late payment fees for missing the minimum payment deadline, and over-the-limit fees for when you spend more than your credit limit. Understand the fees associated with your card to limit surprises.

4. Understand interest rates and minimum payments before applying.

You probably know that a credit card is a way of taking out a personal loan whenever you need one. For that reason, there are interest rates and minimum payments that accompany your use of the card.

Many credit cards will give you a grace period at the beginning where they charge you no interest and are very lenient on your minimum payments. However, after that period has ended (usually between 12 and 18 months after you opened the account), they’ll begin charging you interest and late payment fees. Be aware of that interest rate, and know if you can afford the minimum every month.

5. Your credit card usage is a key factor in your credit score.

When you don’t make payments on time, your credit score will go down, making it harder to get a loan, rent a place to live, and even get a job. For that reason, you should only get a credit card if you’re sure you can keep up with the payments.

6. Credit cards aren’t for everyone.

Credit cards can be great. If you pay them off regularly, you can build good credit and have some extra cash in case of an emergency. However, they can also be a tempting money pit that builds up debt and damages your credit score.

Pretty much anyone can get a credit card, but they’re best for those responsible enough to handle their usage. If you can’t maintain the payments, and you can’t trust yourself to manage your spending, it might be wise to wait until you’re in a better place in life.

7. You can compare cards before applying.

You should compare cards before applying. There are many different issuers and types of cards to choose from. Compare interest rates, repayment terms, usage terms, and more to make sure you choose a card that meets your needs.

Don’t take the application of a credit card lightly. This is a long-term commitment that could lead to more financial freedom or serious damage. Doing a little research and preparing for the application process can make all the difference.