Getting Your First Credit Card
For some, getting a credit card is a right of passage. For others, it’s a financial necessity. But, no matter how you feel about it, getting your first credit card is a pretty big deal. With that piece of plastic in your hand, you can buy pretty much anything you want – as far as your credit limit allows, anyway. That kind of power can be difficult adjusting to, and it can lead to mistakes.
Which is why it’s a good idea to find out as much as you can about how credit cards work before you apply. With the right knowledge at hand, you can make better choices. You will know why you need to avoid the temptation of overspending, why you need to pay off your balance each month, and why you need to make your repayments on time, every time.
While you can find all this and more on our sister site, Credit Card EDU, we’ll give you a run down on the essentials within this guide to get you started and on the right track.
Credit Card Basics
Let’s start at the beginning. How does a credit card work? When you apply for a credit card, your card provider will allocate you a spending limit (known as a credit limit). You can spend up to this amount, but not over it or you’ll get hit with fees. Instead, aim to only use your card to pay for stuff you know you can pay back within the month.
At the end of each month, you’ll receive a statement showing what you’ve spent and where (you can also track this as you go using your card provider’s app). This statement will provide you with your overall balance and the payment due date. While you are required to make at least the minimum payment by the due date (or again, you will be charged a fee), it’s always better to pay off your balance if you can.
Doing this should help you to avoid interest accruing on your balance. Most cards offer a certain number of days interest free on purchases, but only when you clear your balance the previous month. If you don’t, interest will start stacking up on both your carried-over balance, and any new spending as well.
What Happens When You Apply
Once you’ve compared your options – and you understand exactly what you need from your card – it’s time to apply. So, what happens next? After checking that you meet the card’s eligibility requirements, you can apply for the card online. The card provider will ask you to provide certain details regarding your employment, your income, your assets and your liabilities. Bear in mind, you may have to provide documentation to back this info up.
From there, the card provider will check your credit file to assess your credit worthiness. Then, as long as you meet all the approval criteria, your application should be approved. Your card provider will give you important documentation to read, including your card’s PDS (product disclosure statement), and your card will arrive in the post within one to two weeks. After that, it’s simply a matter of activating your card to get started.
What Happens Next
Now it’s up to you to be smart with your card. You can use it to buy stuff online and in person. You can even use it to withdraw cash at an ATM (this is called a cash advance, and it’s not recommended due to the fees and high interest involved). If your card allows for it, you can sync your card with your device using Apple Pay, Samsung Pay or Google Pay, providing even more usability.
Credit Cards for First Timers - Frequently Asked Questions
What should you look for when you compare credit cards? Well, as a first timer, here are the most important factors to keep in mind.
Annual Fees: You will pay an annual fee for the use of your card, typically on the anniversary of your card approval. As a first time card user, look for a card with a low annual fee, or even better, with no annual fee at all. While these cards are generally basic, they help keep costs down as you get to grips with accessing credit.
Interest: Your card will have a purchase rate, which will be applied to purchases, and a cash advance rate, which will be applied to cash advances (ATM withdrawals, foreign currency and gift card purchases, gambling transactions and more). Opt for a card with a low rate on both, if possible. This should keep your interest costs as low as possible if you are unable to clear your balance at the end of the month.
Interest Free Days: Most credit cards offer a number of interest free days on purchases (usually up to 44 or 55 days). As long as you pay off your balance each month by the due date, you can take advantage of these interest free days to help you keep costs down.
Eligibility: Not all credit cards are suited to first time users. Premium cards for example, such as platinum and black cards, tend to require excellent credit history and a high minimum income. You do not want to have your application denied, as this will be recorded on your credit file and may negatively affect your credit score. Instead, look for simpler, low cost cards with more flexible eligibility requirements.
Features: Let’s be clear, features are not your first priority on a first credit card. While there are plenty of enticing features out there, they tend to come at a higher cost. If you look at rewards, for example, these encourage you to spend. Unless you have the funds to pay off that spending, you will likely carry a balance, and then pay interest that will negate the value of any rewards earned.
So, you’ve got a few credit cards on your short list. How do you narrow that list to just one card?
Low Cost: Take a look at how much you’ll pay in annual fees, and any other fees that may apply, such as foreign currency transaction fees. Pay attention to the card’s purchase rate as well, to then opt for the card with a low ongoing annual fee and interest rate.
Account Access: As you get to grips with using your credit card, it’s a good idea to keep a close eye on how you’re tracking. That means choosing a card with a good app. Instead of relying on your statement to arrive at the end of the month to see how much you’ve spent, check your account via the app every few days. Know that you don’t need to wait until the statement is due to pay off your balance, you can pay off little bits at a time or clear it completely any time you like.
Essential Features: Fancy features and rewards are out – for now. But, that’s not to say you can’t check out what features are available. Visa and Mastercard both offer a number of extras, which aren’t always advertised by the card provider. It’s worth checking your issuer’s website to find out what extras you could be eligible for as a cardholder.
Flexible Eligibility: To avoid getting your application denied, you will need to check your card’s eligibility requirements carefully. That means reading the small print. As a first timer, opt for a card with flexible eligibility requirements – and if you’re unsure, contact the card provider to ask for more info.
Knowing what to avoid is just as important as knowing what to aim for as a first time cardholder.
Premium Cards: These will typically require an excellent credit history and a high annual income. Unless you have these under your belt, premium options such as platinum and black cards are usually best avoided by first timers. Aside from the eligibility side of it, these cards also feature extensive fine print, which may be harder to understand if you’ve never used a credit card before.
Complex Features: Again with the small print. If you want to get the most out of your card, you need to know how its features work. While it’s not impossible for a first time cardholder to get their head around complex features, it will take more effort being a credit card newbie.
Rewards: Rewards cards reward spending. Until you get used to only spending what you can afford to pay back each month, rewards are usually best avoided as they encourage spending month to month.
Introductory Offers: While some intro offers can be handy to have as a first timer – for example, reduced annual fees or a 0% purchase offer – they shouldn’t be the sole reason to choose a card. If the card is solid – and the offer is too – go for it, but if the offer only serves to entice you to apply for a card that doesn’t suit your needs, it’s best to walk away.