Getting Your First Credit Card

Choosing a bad credit card could be a mistake that haunts you for years, and with so much complicated information out there, it’s easy to understand why you might not feel ready for your first credit card. But having a great credit card comes with a ton of benefits such as the ability to build your credit score, protection against fraud, and of course, rewards like cash back and miles! So in this video, I’m going to go over all the things you need to know about getting a credit card so you can feel confident you’re making the right choice.
And if you’re just looking for a recommendation for what credit card to get, I’ve got you covered as well in a video I’ll link in the description below. So let’s get started! First things first, a credit card allows you to pay for things on credit, which means to use borrowed money. It’s important to understand that when you pay with a credit card, nothing is actually coming straight out of your bank account.
Instead, the bank that issued you the card is paying on your behalf with the expectation that you’ll pay them back at the end of the month. This is why banks look at your credit score and income before approving you for a credit card, because they want to feel confident that they’re going to get repaid for all the money they basically lent you.
And if you don’t pay back what you owe at the end of the month, you’ll get charged a ridiculous interest rate which is the last thing you want. Now when you’re actually looking at a credit card offer, there’s only five things you need to look at. First is the annual fee. Many cards will charge you an annual fee just to keep the credit card open.
And while there are good credit cards out there with annual fees, I highly recommend staying away from cards with annual fees for your first credit card for one simple reason. Your first credit card will have the biggest impact on your credit score, and if you choose a credit card with an annual fee that down the road you end up no longer wanting, you’ll either have to close the credit card which will hurt your credit score, or you’ll end up continuing to pay an annual fee for a card you don’t want anymore just to keep your credit score up. The second thing to look out for is a card’s Annual Percentage Rate, or APR. This is basically the interest rate you pay on the money you borrowed if you don’t pay off your credit card in full every month. This rate is typically given as a range because it’s based on your credit score, and you won’t find out your exact percentage rate until after you get approved for the card.
Now technically this rate doesn’t matter that much because if you’re paying your card off in full every month, you don’t get charged interest, but I still think it’s important to understand the cost of not paying off your card. Third, you should check if the card has a foreign transaction fee. This is basically an additional fee on your spending that you’ll have to pay if you use your card internationally.
For some of you, this may be a huge deal and for others, this may not matter at all. It really just depends on your lifestyle and how often you plan to travel to other countries. Fourth, you should understand a credit card’s rewards. Now, not all credit cards have rewards but for those that do, there’s generally two types of rewards that you see.
The first is points or cash back that you get back for spending money on your card, and the second is a sign up bonus which is usually a cash bonus you get for spending a certain dollar amount on your card in the first few months. Finally, the fifth thing you should be looking out for when you’re looking at a credit card is what bank is actually issuing the credit card.
Now this isn’t something that most people talk about when looking at credit card offers, but it can really make or break your experience with the credit card. I’m going to break this down into three tiers. A tier banks offer some of the best credit cards or credit card experiences, B tier banks are kind of middle of the pack, and C tier banks are banks that you should generally stay away from.
In A tier, we have Discover, American Express, and Chase. Discover and American express always rank far above the rest when it comes to having a good customer service experience while also offering good credit card options. And while Chase may not have the best customer experience, I think their credit card options are so good that they’re worth being in A tier anyways.
In B tier, we have a lot more banks because they are not particularly amazing or over the top, but they’re not the worst either. You’ll generally be fine getting a credit card from one of these banks but don’t expect them to be on your side when you need help. Lastly in C tier, you have banks that you might want to avoid.
These banks generally score pretty poorly on customer experience surveys, and they also try to make a lot of their money by charging you fees for all sorts of things you wouldn’t expect. Credit One in particular uses a very similar name and logo to Capital One which has led many people to think they’re the same company when they’re really not.
Moving on, now once you’ve looked at those five factors and found a credit card you like, you’re ready for the application process. Applying for a credit card can be a nerve-racking experience because there’s no guarantee that you’re going to get approved. In fact, if you have a weak credit score or no credit history at all, you’re very likely to get denied for most credit cards you apply for, which is exactly what happened to me when I applied for my first credit card without knowing anything.
But of course that kind of leads to the obvious question of ‘how are you supposed to get a credit card’ when it needs a credit score, but to get a credit score, you need a credit card? Well thankfully, there’s a simple answer to that. If you don’t have a good credit score, you’ll need to find a credit card that’s targeted to people in your exact situation.
Typically, this means getting either a student credit card or a secured credit card. I go a bit more in depth in my credit card recommendation video, but generally you should be searching for those two terms, depending on whether you’re a student or not. The application process itself is generally pretty simple.
There will be an apply now button somewhere on the page and if you click on it, it’ll take you to a form where you fill out basic information about yourself such as your name, your address, your social security, and also information about how much income you have. After you submit your application, you might get instantly approved, but oftentimes you’ll have to wait a week or two for them to send you a mail that tells you you’re approved and gives you your card, or that tells you you’re denied.
If you were approved and received your card in the mail, that’s great! The letter you received in the mail will generally tell you your APR, or annual percentage rate, and your credit limit, which is how much you can spend on the card every month. There’s also usually activation instructions for how to set up your card.
It’s at this point that you want to link your bank account, and set it up so that it automatically pays the full statement balance every month. As long as you’re automatically making the full payment every month, you’ll never get charged interest or fees for being late on your payment. You’ll also see something about a billing cycle as well that can get kind of complicated, but here’s a simplified explanation.
Let’s say your billing cycle runs from May 1st to May 31st. On the last day of your billing cycle, so in this case May 31st, you will get sent a billing statement that lists all the things you’ve purchased on your credit card, and tells you how much you owe. The statement will also have a due date on it which tells you when you will need to make your payment by.
Lastly, there will be a minimum payment on the statement which tells you the minimum you have to pay to not get charged a late fee. This is there because you technically don’t need to pay back the full balance on your credit card every month, but that’s not to say that you shouldn’t because if you don’t pay off your balance in full every month, you’re going to get charged that crazy APR on everything you didn’t pay back.
And that’s about all you need to know about credit cards but hold on. I have a few more pieces of advice that I think you should hear. First, credit card debt is a very real problem and it’s a hard problem to get out of, so don’t even put yourself in that situation by only buying what you can already afford without the credit card.
Your credit card should be used as a convenience with some nice rewards, not as a way to pay for things that you can’t afford without your next paycheck. Second, and this is related to the first piece of advice, but always pay off your balance in full every single month so you don’t get charged a ridiculous interest rate.
Even if your card has a special offer for a 0% interest rate, you should still be paying off the card in full every month or else things could easily get out of hand. Lastly, if you apply for a credit card and get denied, it’s not the end of the world, okay? People get denied all the time and it’s nothing personal.
It’s just what the bank decided to do in your situation. And if that happens, just keep looking for other options, there’s tons of credit card companies out there. And there you have it, that’s about everything you need to know about getting your first credit card. Now if you enjoyed this video, why don’t you leave a comment below telling me what you want to learn about next, and if you’re new to this channel, subscribe for more Five Minute Finance.