Are you ready for your first credit card?

Getting your first credit card can be an exciting and symbolic moment in young adulthood. Not only does having a credit card make managing life as an adult easier in a lot of ways, but when used thoughtfully, it can be a great tool for building a stronger credit history.

But despite the many benefits that can come along with having a credit card, you’ll want to think carefully before applying for your first one. Credit cards come with a lot of responsibility, so if you’re considering opening your first line of credit, here are a few things to keep in mind as you decide whether you’re ready for a credit card.

When to get a credit card for the first time

Before deciding when to get a credit card for the first time, there are some milestones that can be helpful to hit and habits that are smart to build so you don’t make any major credit missteps later on.

When you understand how credit cards work

A credit card is a big responsibility, and even with the best of intentions, if you don’t understand how credit cards work, it can be easy to make damaging credit mistakes.

In short, a credit card is a financial tool that you can use to make purchases against a line of credit. When you use a debit card, you’re pulling from your own money every time you make a purchase. With a credit card, you’re borrowing money from your issuer and you repay the debt when you pay your monthly bill.

If you don’t pay off your monthly credit card balance in full, you’ll start to accrue interest charges on the remaining balance. Using a credit card responsibly by making on-time payments can help you build your credit.

When you have a budget in place

If you don’t have a budget yet that maps out your monthly expenses, now is a really great time to create one. When you’re not using cash to make purchases, it’s easy to lose track of how much you’re spending. If you accidentally spend more on a credit card than you can afford to pay off at the end of the month, your purchases will end up costing you more in interest.

No matter what your credit limit is, you’ll want to create a budget that gives you a firm grasp of your spending power so you know what’s a manageable amount to be charging on your credit card each month.

Take some time to review past bank statements and compare how much you’re spending with how much you’re bringing in. This will give you an idea of what you can afford to spend and will make it easier to identify where you’ve been spending your money and any areas you can cut your spending back.

When you don’t ‘need’ credit

A good time to get your first credit card is when you don’t “need” a credit card. A credit card can be a useful financial tool that makes it easier and safer to shop online, and reduces the need to carry cash around. Making purchases with a rewards credit card can even earn you valuable points, miles or cash back. If you already have the cash flow to pay off your balance in full each month, you’ll be getting rewarded for everyday purchases you would have made anyway.

However, if you need to borrow money in order to make purchases you wouldn’t otherwise be able to afford, a credit card can be the start of a slippery slope. Making charges on a credit card without a plan to pay them off can easily lead to credit card debt. And as interest continues to accrue on growing balances, you may find it becomes harder and harder to get a handle on your debt.

Not only is it important to avoid carrying a high balance on your credit card so you can afford your monthly bill, lower credit card balances help your credit score, too. Your credit utilization ratio, which is the amount of available credit you’re using, accounts for 30 percent of your FICO score. Most experts recommend keeping your credit utilization below 30 percent. So, if your credit limit is $1,000, you should aim to keep your balance at $300 or below.

How to get a credit card for the first time

If you are ready to take on the responsibility of a credit card, you should apply for one. Here’s what you need to know about how to get a credit card for the first time.

1. Understand how your credit score comes into play

The better your credit score is, the better your odds are of securing one of today’s best credit cards. While you can get a credit card with fair credit or no credit or a limited credit history, it can be a good idea to spend some time improving your credit score before applying for your first credit card.

Generally, this is how your FICO score can affect your credit card options:

  • If you have a poor (579 or lower) or fair (580 to 669) credit score, a secured credit card or a credit card designed for poor credit may be the only options available to you.
  • If you have a good (670 to 739) credit score, you won’t necessarily qualify for a premium card, but you can likely qualify for some pretty strong credit card offers.
  • If your credit score is considered to be very good (740 to 799) or excellent (800 and up), then premium credit cards are within your reach.

2. Choose the right card type

While most credit cards function more or less the same way — you make purchases and pay them off — some have additional features tailored for different needs.

You’ll want to pick a card that best suits your needs. While these aren’t hard and fast rules, here are a few examples of how certain credit cards can help you achieve different financial goals:

  • Do you want to give your credit score a boost? Try a credit-building card. The best cards for credit building are often secured credit cards or student cards.
  • Have a big purchase coming up that you want to pay off slowly? Find a card with an introductory 0 percent APR offer that gives you a year or more with no added interest while you pay off your balance.
  • Want to carry a balance from time to time? Be sure to choose a low-interest credit card that offers a lower APR all year round.
  • Are you in it for the rewards? Find a rewards card that can help you earn the perks you desire, whether that’s a travel credit card or a cash back card.

3. Identify the important cardholder benefits

Even after you identify what type of credit card you think will work best for you, you’ll want to compare different options within that category. All card issuers offer different perks to their cardholders, so it’s worth shopping around until you find some options that work best for you.

For example, if you love to travel, you’ll want to find a card that offers great travel rewards, like lounge access and hotel upgrades. If you aren’t a big traveler, everyday cardholder perks might be more valuable.

Check out these common cardholder perks and think about which ones are a priority to you:

Travel perks

  • Airport lounge access
  • TSA PreCheck or Global Entry credits
  • Travel accident insurance
  • Trip cancellation or trip interruption insurance
  • Reimbursement for delayed or lost baggage
  • Primary auto rental coverage
  • No foreign transaction fees

Day-to-day perks

  • Cellphone insurance
  • Reimbursement for certain purchases if they are damaged or stolen
  • Extended warranties beyond the manufacturer’s warranty
  • Free credit scores and credit monitoring
  • Discounts on shopping with select retailers

4. Don’t forget the annual fee

Some cards come with an annual fee, and you’ll need to decide if paying that fee is worth it to you. Often, cardholder perks more than cover the cost of the annual fee as long as you make the most of them. It’s worth crunching the numbers to see if you’ll get enough out of the card to justify paying for it each year. Some credit cards come with a large sign-up bonus that can balance out the cost of paying the annual fee, at least for the first year.

If you have a poor credit score, you may need to pay an annual fee in order to get a secured credit card, which can help build your credit and make it easier to qualify for an unsecured credit card in the future.

5. Pick a credit card

Now that you know what type of card you’re likely to qualify for, what type you actually want, what perks matter to you and if you are okay with paying an annual fee or not, you can narrow down your search.

Bankrate’s CardMatch tool can help you gauge your odds of being approved without having to actually apply for cards and triggering a hard pull on your credit.

Read up on reviews for each card you’re considering to see if it fits with your goals and preferred benefits. Then, start by applying for your top choice. It can be helpful to start with just one application at a time. If your card application gets rejected, review the reason given by the credit card issuer and learn from it. Perhaps you need to improve your credit score. Or, the issuer decided your current income was too low.

Pacing out your applications gives you a chance to work on your eligibility and helps you target your efforts toward cards you’re more likely to qualify for.

How to use a credit card wisely

Once you have a credit card, you’ll want to start forming good credit habits. Here’s how to use your credit card wisely.

  • Don’t charge anything you can’t afford. Using credit cards to make large purchases is a great way to earn a lot of rewards quickly, but you should only make big purchases (or really any purchases) with a card if you know you can afford to pay your bill off at the end of the month. Carrying a balance on your card can lead to expensive interest payments that will make your purchases cost more than you intended to pay. If you need to borrow money for a large expense that you know you won’t be able to pay off right now, it may be worthwhile to look into a personal loan, which is likely to have a much lower interest rate and a set repayment plan.
  • Don’t carry a balance without a plan. There may be times when you decide paying interest rates and fees are worth carrying a balance on your card for the short term. If you carry a balance, have a plan in place to pay off your debt before it begins to grow and become unmanageable.
  • Track your spending all month long. It’s easy to swipe your credit card in a store or type in the number when checking out online, but it’s also just as easy to forget everything you used your card to purchase throughout the month. Keep track of your spending all month long so you aren’t hit with a surprise bill. You can do this manually, in a notebook or spreadsheet or use an app designed to track spending. Most credit card companies and banks have apps that link up with your account that make it easy to review your spending, but kicking it old school with pen and paper works just as well.

The bottom line

Credit cards can be great financial tools. They can provide the flexibility and convenience necessary to make purchases, earn rewards and build credit. However, this is all reliant on responsible use. At the end of the day, credit cards are not foolproof and it’s important to assess your own readiness before applying for your first credit card.

Artur Starke
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