For first time users, credit cards are a great way to build your credit score, not to mention offering an extra bit of financial support in times of need. However, before choosing to use a credit card it’s important you know what options are available. If you’re looking to get your first credit card, make sure you’ve covered the basics.
Understand what you’re getting into
For a lot of newcomers, especially young adults, the world of credit cards is a bit of an unknown. Before you start applying, do you really know what you’re getting into? Do you understand your credit score and how that affects what sort of cards you can apply for? Likewise, do you understand credit limits and credit utilisation and how they affect your score?
Are you aware of how APR works, and how important it is to make regular repayments on your balance to avoid late fees and other charges?
If the answer to any of these is no, you need to do some more research before you get involved. In the wrong hands, credit cards can cause a lot of trouble, so make sure you’re prepared for all the pros and cons.
Get yourself in shape before you apply
Having done your research, you’ll know that it isn’t just as simple as applying for a card and getting it the next day. Providers are very careful with who they give cards to and who gets the best deals, so you need to give yourself the best chance of being accepted before you apply.
You probably have a bank account, which is a good start in showing you have some financial responsibility. If for whatever reason you don’t have a current account, open one. Registering to vote will give you proof of address which can potentially boost your credit score.
Most importantly, pay your bills on time. By building a history of punctual payments on things like your utilities, you again display some financial responsibility, which goes a long way in helping a provider trust that you’ll be a reliable borrower. The key is to give yourself the best possible credit score leading into your application. Missed payments and outstanding debt will damage your score, which will limit the type of card, and deals, you can get.
Choosing the right card
Credit cards come in various forms, designed to fulfil different needs. When you’re applying, you’ll need to know which kind of card best suits your needs. Here are the four main types you can go for:
Credit building: Likely the best choice for a first timer, credit builder cards are made for those with poor or limited credit history. Usually charging high-interest rates with low credit limits, credit builders are designed to help you build trust and increase your credit score, offering the potential to move onto better cards in the future.
Balance transfer cards: Made for people looking to transfer or consolidate existing credit balances, balance transfer cards tend to offer 0% interest for an extended period, allowing you to better manage your debt whilst getting some relief from interest payments.
Purchase cards: Made for those looking to make purchases ahead of time, purchase cards offer interest-free periods like balance transfer cards, but these are normally introductory offers, after which interest rates will increase.
Reward cards: Reward cards offer incentives like cash back and shopping bonuses that accumulate as you use the card. Made for bigger spenders who can comfortably repay the full balance come the end of every month.
When it comes to managing your personal finances, it’s important you consider every option out there. If and when you do come to get a card, make sure you’re clued in on what’s ahead. Use it well and a credit card can be a great help for the future.