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Your first credit card can unlock financial opportunity and help you build your credit history, paving the way for great terms on mortgages, car loans and credit cards in the future. Plus, credit cards can provide valuable benefits you won't get with cash or a debit card, such as rewards you can earn just by making purchases.
But this doesn't mean getting a credit card is always the best move. Cavalier charging, missed payments and other missteps can trigger long-term consequences, causing financial strain and making it harder to borrow down the road.
With stakes like these, opening your first credit card is not a decision to take lightly. To decide if you're ready for your first card, consider the answers to these questions before you submit an application.
What Is Your Credit Score?
Your credit score is a three-digit number based on the information in your credit report, which tracks your history handling debt accounts and making payments. It's what lenders, landlords, employers and even insurance companies use to gauge your ability to manage credit responsibly. A long history of on-time payments and reasonable credit usage can lead to higher scores that tell lenders they can count on you to pay them back. If you have lower scores, on the other hand, a lender could view you as a riskier prospect and deny your application or charge you a higher interest rate as a result.
Learning your credit score (and whether you have one yet—more on that later) is the first step when considering a credit card. You can access your FICO® Score☉ , the one used by most lenders, in many ways—you may even be able to get it for free through your bank. You can also view your credit report and scores for free directly through Experian.
Card companies advertise the score range they'll consider for each card, and they might be able to prequalify you to give you a better idea of whether you'll be approved. If you've received a preapproval letter, this is often an indicator that you have a decent chance of qualifying for the card being offered. When you formally apply, the credit card issuer will take a look at your credit report and scores. This typically results in what's called a "hard inquiry," which will show up on the credit report that was viewed and can cause a temporary dip in your credit score. There's little harm in a few hard inquiries, but too many could elevate the level of risk you present to creditors.
What if Your Score Is Low—or Nonexistent?
If you're just starting out, you may not yet have a credit score at all. This is perfectly normal—think of it as a blank slate for you to fill with good credit habits. However, you may already have a report that reflects past-due loans (including student loans) or bill payments in collections that have been reported to credit bureaus, so it's always wise to check.
A solid credit score is key to securing higher credit limits and lower interest rates on credit cards, so start by understanding what comprises the bulk of it: your payment history and credit utilization. Together, these two factors account for 65% of your FICO® Score, so they're crucial for keeping your score in great shape.
Payment history on your credit report shows a record of your history making bill payments on time or otherwise. Every on-time payment you make helps you build your credit, and missed or late payments remain on your credit report and affect your scores for up to seven years. Setting up automatic payments for at least the required minimum can help you avoid any late payments.
Your credit utilization refers to how much of your credit limit you're using at any given time. For example, a $500 balance on a credit card with a $1,000 credit limit will result in a credit utilization ratio of 50% for that card. Utilization is considered on a per-account basis and as an overall measure that includes all your credit card accounts. To prevent credit score harm, aim to keep your utilization under 30%, at least—the lower, the better.
You may be able to build credit before you apply for your first card. You might see if a responsible friend or family member is willing to add you to an account as an authorized user to one of their credit accounts. Their on-time payment history will appear on your credit report and help develop your emerging score. Also, you might try Experian Boost™† to capitalize on your payment history with bills like streaming services and utilities. These bills don't typically show up on your credit report, but Experian Boost can make sure your history paying them on time is factored into the scores based on your Experian report.
Do You Know How to Use Your Credit Card?
One of the best ways to keep your utilization rate low, and your credit score high, is to treat your credit card like cash—only making purchases you can afford to pay off immediately. When you're new to credit, start by making small purchases, such as gas and groceries. Make it a habit to stay disciplined with your spending and pay your bill off completely before the end of the billing period. Make note of when your bill is due and how you plan to pay for your purchases.
Until you're more comfortable, steer clear of charging more significant expenses, like a new phone or that TV you've had your eye on. Big purchases will cause your credit utilization ratio to spike and result in interest charges if you don't pay the purchases in full right away.
Try to think of your card as a loan that you need to pay back each month—because, technically, that's what it is. If you don't pay back all of what you borrowed (or, for credit cards, what you charged), you're charged interest on top of what you already owe on purchases. Here's how to manage the steep annual percentage rates (APR) your new credit card may charge:
- Don't carry a balance, if at all possible. If you do, focus on paying as much as you can each month and stop making purchases with the card until you clear the balance. Carrying a balance will cause you to rack up interest charges and could drive up your credit utilization.
- Don't only pay the minimum due. Interest charges will continue to build and contribute to debt that can take years to pay off, even if you stop charging on the card.
- Don't utilize crediting options like cash advances, which can start accumulating interest in your account even before your billing cycle ends. If you need quick cash, personal loans are almost always the better option.
- Don't get distracted chasing rewards. Overzealous spending in pursuit of rewards can quickly undo any benefit you earn.
Do You Know Which Credit Card You Want?
Suppose you want to earn big rewards for travel or shopping. Opening a credit card (and using it responsibly) can certainly help you achieve those goals—just don't expect to qualify for any lavish rewards cards right off the bat. Lenders like to see a proven track record of credit responsibility before extending high-end benefits, so a low or nonexistent credit score will unfortunately narrow down your choices considerably.
Your first card should be all about gaining confidence in your money payment habits while you generate a solid credit history. You may not qualify for those fancier cards until later on, but you can still find some rewarding options in the meantime.
A secured credit card requires a deposit that usually becomes your spending limit. Since that deposit also acts as collateral, this type of card is one of the best (and, honestly, few) options for those new to credit or those with low credit scores. Most secured cards don't offer many perks, but they'll usually report your payment history to the credit bureaus and help you build your credit. If a secured card sounds up your alley, the Discover it® Secured is an option you might explore. With this card you'll earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, plus unlimited 1% cash back on all other purchases. This card also doubles cash back earnings at the end of the first year for new cardholders.
Student credit cards are intended for—you guessed it—students. They're unsecured, meaning they don't require a deposit, but applicants under 21 will need to provide proof of their own income or in some cases may be able to have a cosigner vouch for them. Similar to its secured card cousin, the Discover it® Student Cash Back card matches cash back for new cardholders at the end of the first year. Not only that, the student version even rewards you with a statement credit just for keeping up with your grades. For a more barebones student option, however, the Journey Student Rewards from Capital One card bumps up your cash back earnings a little when you pay on time.
Landing other unsecured cards can be a tall order for credit newbies with limited credit history, but there are still a few options. While you build up your financial skills, consider a card like the Capital One Platinum Credit Card. There are no rewards to tempt you into overspending, and although the initial credit limit is low, you may be considered for an increase in just six months.
If you get denied for any of your first picks, give the issuer a call or review the adverse action letter you should have received to find out exactly why you weren't approved before you apply anywhere else. If the hitch was your credit (or lack thereof), you might try applying for another card, like the The OpenSky® Secured Visa® Credit Card, which doesn't require a credit check or bank account to qualify. Alternatively, the Petal® 1 "No Annual Fee" Visa® Credit Card lets you link your bank account, so you might not necessarily need a credit score to start netting their merchant-specific cash back opportunities.
The Final Question: Do You Feel Ready?
Remember that even seemingly minor mistakes can have direct and long-term impacts on both your credit score and overall debt. So, what can signify you're ready to use your first card responsibly?
- You have an income to cover your monthly bill in its entirety, along with any unexpected expenses that may come up.
- You can trust yourself not to overspend, with the intent to use your credit card in the same way you would use a debit card.
- You can commit to paying on time, without fail (remember, using automatic payments can help you guarantee this one).
- You've carefully reviewed your credit report and score and understand what they mean.
- You've read through the terms and conditions of your potential matches to find the best cards for your current goals.
You can muse about future spending incentives all day, but the truth is, a credit card can cause a lot of stress if you aren't ready for the responsibility that comes with it. Use the questions in this guide to help you assess if, when and how you should go about locking down your first credit card. Be honest with yourself about your spending habits and level of accountability, and only start swiping when the time is right.