What to Consider When Applying For Your First Credit Card
August 17, 2020
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Applying for your first credit card is a huge milestone. There's a lot to consider, but the better deal you the more money you’ll save in the long run.
What is Credit History?
Your credit history is a personal record of all your borrowing.
Lenders track how well you repay credit, like mortgages or car loans, and new lenders use that history when you apply for a new account.
Check Your Credit Score
Your credit score summarizes your credit history.
You can see your score online for free by going to the website of one of the three major credit bureaus: Equifax, Experian, or TransUnion.
Your bank may also provide a score to you using FICO or VantageScore.
What's a Good Credit Score?
Credit scores range from 350 to 850. Anything over 700 is good.
An average score is between 600 and 750.
If your credit score is on the lower end, don't worry—as a new borrower, you need to develop credit history.
Using your first credit card responsibly can help improve your score.
Does My Credit Score Affect Which Card I Can Get?
In short, yes.
Credit scores over 800 receive the best rates, since a high score means a good lending history.
Your first credit card will allow you to build credit, but it will probably offer fewer perks than options available to people with established credit.
How to Pick a First Credit Card
When you're shopping around, compare rates and fees,rewards, and think about how you'll use the card.
How Will You Use Your Card?
Most people get their first credit card to build credit history, make a big purchase, or to have on-hand for emergencies.
Having a plan will help you decide what you need your first credit card to do.
All About Rates, Fees, and Limits
Here are some of the terms you'll see advertised for credit cards. Compare cards to find the best set of rates and features for your needs.
- Interest Rates / Annual Percentage Rate (APR)
The APR is the price you pay to borrow money with your credit card. The lower your APR, the less interest you have to pay.
APR offers are calculated based on your credit history.People with higher scores get better rates. APR rates change from year to year.In 2020, a good APR is 17% or less. Over 22% is high, but common for newer borrowers.
- Annual Fees
An annual fee is a once-per-year cost to use a credit card. Most cards for first-timers don’t have annual fees, but read the fine print to be sure.
- Late Fees
When you pay late, pay too little, or skip paying altogether, your credit card provider will charge a late fee. Late fees are usually $28 to $39.
- Credit Limit
The maximum amount of funds you're allowed to charge to a credit card is called your credit limit. Your limit will depend on your income and credit score.
A low limit of $2,000 to $4,000 is common for first-time credit card holders.
What About Benefits?
Some cards offer cash back rewards, intro bonuses, or travel points.
Rewards cards can be great, but they usually have higher APRs or annual fees. Credit cards for new borrowers often have 1% cash back on purchases or an intro offer with a lowered APR.
A credit card is an important step to building credit history. Follow these guidelines and get a first credit card that will last you.
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