Applying for the "first" credit card can be exciting, but challenging. A credit card is convenient and also helps to build up a credit history. But you have to be careful while dealing with it. Using a credit card signifies that you're borrowing money from a third party, which you need to pay off within a definite time.
You have to be aware of some factors before buying your first credit card. For example, the credit card you choose needs to have the lowest fees and interest rate. Also, the card should provide some benefits and perks based on the usage.
Here are some ways you can avoid high fees and interest rates when applying for first credit card.
1. Build up a good credit history to avoid higher interest rates
Having a good credit score is important to become eligible for the best credit card. The higher your score, the better deal you'll get.
There are many other ways you can build up a good credit score without using credit cards. One of the ways is opting for a credit-builder loan. Handling a credit-builder loan in a proper way can improve your credit score.
If your credit score is 700 to 800, then you can get a credit card with the best interest rate. The credit card company can charge a higher interest rate even if your credit score is below 700 and above 600.
As per the expert's recommendation, you should apply for a secured credit card if your credit score is below 680.
So, you need to review your credit report regularly because there might be mistakes, which can affect your credit score negatively.
If you find out an error, dispute it with the credit reporting agencies as soon as possible.
2. Go for a secured credit card
If you’re a first timer who is not sure how to manage a credit card, then a secured credit card is for you. It provides a limited amount of credit to you for use. The amount you can get based on some factors like how much you have deposited, your income and your ability to pay.
A secured credit card is similar to a debit card to some extent but serves a credit card's purpose. However, it is a good option to get entry into the credit card's world.
Using your secured credit card and managing it properly allows to build up a good credit score. Thus, you can take out your first conventional credit card with favorable terms and conditions in the future.
According to the Gerri Detweiler, head of market education for Nav, “There might be a notation that it’s a secured card, but for credit-scoring purposes, they’re all treated the same. So if you’re worried about running into debt, this might be a good option.”
3. Research well when choosing your first credit card
Getting the best credit card is tough, but you should try at your best. Search online to compare fees and interest rate before purchasing your first credit card. Try to get a credit card that charges lower fees or no annual fees. Remember, annual fees of a credit card can vary from $0 to $75 in a year. You need to pick a card that charges lower fees. Also look for a credit card that gives benefits (Bonus points on purchases, and rewards point).
4. Take advantage of a student credit card
Try to get a student credit card; it provides a variety of benefits like lower fees and cash back opportunity. Some student credit cards come with a 0% APR as well.
5. Pick the right credit card
Now, you will find many credit cards such as cash back credit card, travel credit card, gas credit card, and store credit card. You have to pick the right one as per your lifestyle and budget.
For example, if you travel frequently, then go for a travel reward credit card to earn bonus points. A gas credit card is for people who drive a lot. Remember, these cards are good to earn points but charge higher annual fees than usual. However, a retail or store credit card is best for first-time credit card user or who haven't established a credit history. Getting approval for a store credit card is easier than others as well.
6. know the terms and conditions of your credit card
Before buying your first credit card, you should read the terms and conditions properly. The terms vary company to company. So, make sure to read and understand all the terms beforehand.
Finally, you have to pay the minimum balance within the time to avoid late payment charges. Remember, even the best credit card can add up if you don't manage it properly. So, keep the credit limit low and use it whenever you need it. Also, don't use the credit card for cash advances, you'll be charged higher interest rate.