When you’re just starting out in the world of credit, your first order of business is to find a credit card that you can actually get. For people with no credit history or a severely limited credit history, your best bet could very well be a secured card. If you have some cash to put down, you can get a secured card. The money you bank with your credit card issuer will be tied up for as long as you have a card, but otherwise it works like a standard credit card. It can be an important step on the road to establishing good credit.
While it’s important to get some kind of credit card to get you started building up your credit score, be cautious when applying for cards. The first kinds of cards you’ll be offered will most likely not offer the most advantageous interest rates, terms or conditions. Some cards may charge you a monthly fee instead of an annual fee, which adds to the expense of maintaining this card. Also, some of the cards offered to people with poor or no credit boast outrageous interest rates, sometimes as high as 30%! However, there are many secured credit cards that offer interest rates that are comparable with unsecured cards. In addition, some of these introductory cards have grace periods or the grace periods are really short. (A grace period is the time you have to pay your balance with no interest charged.) Do some comparison shopping online.
As the old adage goes, “Slow and steady wins the race.” For newcomers to the world of credit, it’s best to start with one card, use it carefully, and build a record that shows you can use credit sensibly. Once you’ve had your card for a while, say a year or so, you can consider getting another card or two.
You really do need more than one line of credit on your credit report, so having two cards on your credit report will most likely help you out. How many cards is optimal for your credit score? Since credit scoring formulas are held secret, it’s difficult to say without knowing your exact credit situation. Just remember that every time you apply for a new credit card, you will get an inquiry on your credit report which can ding your credit score by up to 5 points each. It’s best to be cautious and methodical, so take your time to build up a history of making your credit card payments on time and keeping your balance low.
For those who have never had a credit card before, or taken on any type of loan, they have to remember that they basically have no track record with managing credit. At this point, you most likely do not have any credit score at all.
If you want to build good credit, then you need to open some kind of credit account, whether it’s applying for a car loan or secured credit card. It pays to check the requirements for qualifying so you do not get unneeded inquiries on your credit report. You need to be at least 18 to get a credit card on your own, and when you are under 21 years of age you must demonstrate to potential credit card issuers that you have a job or some other source of income so that you can repay the money you borrow.
Since the whole point of getting your first credit card is to work toward a good credit score, you need to be disciplined about how you use it. Here are some good principles to follow:
In closing, please keep this principle in mind. Remember ,even though the first credit card gives you a big taste of independence and opens up a world of opportunities, don’t be foolish with your credit. Once you’ve managed to acquire your first credit card, don’t go crazy with it. You should only use it for essential purchases such as paying utility bills when your bank account is empty. Before making any large purchase with a credit card, carefully consider how much you’re putting on your credit card, how long it will take to pay it off, and how much interest you’ll wind up paying. That will reveal the true cost of your big credit card purchase.
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