HOW TO CHOOSE YOUR FIRST CREDIT CARD?

Opening a first credit card is an important and not easy step in our lives. The first credit card guarantees us financial freedom and allows us to make large purchases. We can also use it in case of financial emergencies. Used wisely, a credit card helps us to build a good credit history and makes our credit scores higher. But if we are not careful enough, it can be expensive and ruin our credit report. Check out how to choose the best credit card and how to use it wisely.

Credit Cards: Risks and Benefits

There are both benefits and risks of opening a first credit card. That's why it is important to become aware of them.

There are many advantages of having a credit card. It allows us to purchase goods on credit, which can be very convenient, for example in case of financial emergencies or just when we need to buy something expensive. It also offers us a free credit for a limited period of time: thanks to that, if we clear the balance before a due date, we won't have to pay any interest.

Credit cards also help us to build our credit score. If our credit history is not very good or if we don't have one, it is recommended to open a credit card and pay it every time before a due date. You can read more about building a positive credit history in our article „How To Improve Your Credit Score”.

As the owner of a credit card, we can also count on many benefits, such as points we can exchange for rewards or a cashback.

Credit cards, if used wisely, are really beneficial. But there are also some risks involved in opening the first card and we all should be aware of them. It is crucial to know, that if we don't pay our debt on time, credit provider will start to charge us with really high interest – and that can lead to a debt spiral. To avoid that serious risk we need to clear all the balance before a due date.

There are also many hidden costs a dishonest creditor can conceal. That is why we should always read the agreement carefully before signing it and pay attention to every fee.

Choosing Your First Credit Card

Now, while you are aware of advantages and disadvantages of owning a credit card, you can make a conscious decision about opening your own one.

Below we present six steps of choosing the best credit card.

Step One: Age Restrictions

Some credit cards have age restrictions. It is hard to get a card when you are under 21. You can work around this by proving that you have a full-time job and a stable source of income or signing an agreement with some adult.

When you are over 21, age restrictions are not relevant for you, but you still have to demonstrate some source of income.

Step Two: Length of a Billing Cycle

There are two types of billing cycles: 30-day cycle or payment every two weeks. Option two requires more attention and forces you to clear all the balance every 14 days. That is why option one can be better and more comfortable, especially in case of people who didn't have any credit card in the past. That is why you should better seek a card with a 30-day billing cycle.

You may also need to check if there are any penalties for not using your card during a monthly cycle.

Step Three: Secured or Unsecured?

There are also two types of cards: secured and unsecured.

Secured credit cards have a cash deposit: it's as high as the credit limit of a card. You have to deposit that amount of money for a card provider. It serves as a collateral in case you won't be able to pay your debt. That kind of credit card is offered to people with poor or no credit history.

Unsecured credit cards have no cash deposit at all.

As you can see, unsecured credit cards are more comfortable because you don't have to deposit any money in case of not paying off your debt, but when you don't have any credit history yet and your credit score is poor, you will probably be offered with a secured credit card.

Step Four: Interest Rates

An interest rate is variable. It depends on your credit score, credit history, and stability of income.

At first, you may be offered with a higher interest you may want.

That is why it is so important to settle your credit card bills within an interest-free period. You won't be charged with any interest but you will build your credit score in order to be granted a better interest in the future.

Some credit cards offer a promotional interest rate, but you always have to read terms of applying it. Check out how long will it be valid.

Step Five: Other Fees and Charges

Credit cards can be charged with additional fees:

• an annual fee,
• a monthly fee,
• an application fee,
• a late-payment fee,
• an over-limit fee,
• and many more.

Remember to check all of the additional fees and charges before making a decision and signing an agreement. You will find them on offer's terms and conditions.

Step Six: Benefits

As it was already said, credit cards offer us many benefits. And they are the last but also important thing you may want to analyze before making a decision about your first credit card.

Different card providers offer different benefits. They may be:

• cash back on your purchases,
• collecting points for purchases, which you can exchange for rewards,
• no annual or monthly fees,
• promotional interest rates.

Study all of the benefits provided by card issuers and choose the best ones for you.

Before making a decision about your first credit card, compare all of the conditions: interest rate, length of a billing cycle, additional fees and benefits. After that, you will easily choose the best credit card for you.

Author: Olga Gierszal