First Time Credit Card

A credit card can make purchases more convenient and, depending on the card, you might get some nice perks for using it.
 
But what if you’ve never applied for credit before? If you have a short credit history — or none at all — it may be more challenging to get approved. Creditors want to know that you’ll make your monthly payments on time. If you haven’t done that in the past, they may not want to risk giving you a credit card.
 
That’s especially true if you’re young. College students and other young adults used to get lots of credit card offers. As a result, many racked up debt. Then in 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act to protect consumers from abusive lending practices. Among other changes, it prohibited anyone under age 21 from opening a credit card unless they had a cosigner or could prove they could repay credit card debt on their own.
 
If you’re just starting out, take heart. Everyone who has a credit card was once in your shoes. Fortunately, there are some great options for beginners.

What is a credit report and history?

A credit report is a record of how you’ve managed debt. When you take out a loan or use credit cards, your lenders and creditors report your activity to the three major credit bureaus — Equifax, Experian, and TransUnion.
 
Each credit bureau puts together a report about your credit history, which details how much money you owe and whether you’ve made your loan payments on time. Your credit history is constantly updated as new data comes in.
 
The credit bureaus use your credit history to create your credit report, a summary about your financial life that includes:

• Personal information. Your name (and other names you might have used, such as your maiden name), birth date, Social Security number, employers, and your current address and past addresses.
• Your credit accounts, such as credit cards, auto loans, and your mortgage. Your report may include the creditor’s name, the date you opened the account, your loan amount or credit limit, your current balance, and your payment history (including any late payments).
• Delinquent accounts. Any loans sent to collections and overdue child support payments will be listed. So will bankruptcies, foreclosures, liens, and civil lawsuits (including judgments made against you).
• Inquiries. Companies that have accessed your credit report, such as lenders.

It’s important to establish a credit history. Whenever you buy or lease a car, rent an apartment, or apply for a mortgage, your credit report helps lenders assess whether you’ll be able to pay your bills on time.
 
The three major credit bureaus — Equifax, Experian, and TransUnion — are required by federal law to give you a free credit report once a year. Or you can visit AnnualCreditReport.com to get all three.
 
One key piece of data is your credit score, a number that sums up your creditworthiness. The most common type is a FICO score, which ranges from 300 to 850. The higher your credit score, the more attractive you are to lenders. The three credit bureaus each have their own way of assessing data, so your credit score may differ between them. While you can get a free credit report, you usually need to pay to see your credit score.

What is a good first credit card with no credit history?

If you’re shopping for your first credit card, the best option depends on your finances and goals.
 
As a beginner, you may pay a higher annual percentage rate (APR) when you keep a balance on your credit card. You may also have a lower credit limit than someone with a long credit history. But if you use your credit wisely, that can change. Some credit card issuers may raise your limit as soon as six months after you receive your card.
 

Secured credit card

While credit card issuers are hesitant to take a risk on someone who doesn’t have a strong credit history, a secured credit card solves that problem.
 
With a secured credit card, you provide a cash security deposit to the card issuer as collateral. If you don’t pay your credit card bill, the card issuer is covered because they have your cash deposit.
 
The deposit amount is usually equal to the card’s credit limit. So if you provide a $2,500 cash deposit, your credit card’s limit is $2,500. It works a bit like a debit card, because you’re providing funds before using your card to make purchases. But unlike a debit card, a secured credit card isn’t tied to your bank account and it helps you build a credit history.
 
If you consistently make on-time payments, your card issuer may upgrade you to an unsecured credit card (one that doesn’t require a deposit).
 

Student credit card

If you’re at least 18 years old and attend college or a trade school, you may be eligible for a student credit card. It’s usually easier to get approved for a student credit card than a traditional card.
 
Student credit cards generally come with a lower credit limit. Some cards are available to international students, although many require that you be a US citizen.
 
When you apply, you’ll need to show proof of income. That could be income from a job, a side gig, allowance from your parents, or a student grant or scholarship.

How to apply for a credit card for the first time

If you’re ready to apply for your first credit card, it pays to do your homework. Take the time to choose wisely so you can find the best card for you.
 

Decide which type of credit card you want.

As mentioned above, you may want a student credit card, a secured card, or one that caters to applicants within a specific credit score range.
 
Would you like a credit card that offers spending rewards, such as cash back, reward points, or airline mile rewards?
 
Perhaps you’d like a welcome bonus. Some credit card issuers offer new customers a cash reward, for example, or points. In some cases, you need to charge a specific amount with your card to collect that reward, so read the fine print.
 
Are perks important to you? Some credit cards come with VIP perks like presale tickets to concerts or sporting events, airport lounge access, cell phone insurance, or extended warranty coverage.
 

Understand key terms

While reviewing credit card offers, you’ll see various terms and acronyms. Understanding the lingo will help you make the best choice.
 
Your credit limit is the maximum amount that you can charge to your credit card.
 
A credit card’s annual percentage rate (APR) is the amount of interest you’ll pay when you carry a balance from one month to the next. Lower is better, but be aware that new credit card holders often pay a higher APR — at least until they build their credit history. Some cards offer a low introductory rate that rises after, for example, 6 or 12 months. If you plan to make a big purchase, this can be a great way to pay low or even no interest. Just be sure to pay off your balance before that higher interest rate kicks in.
 
Some credit cards charge an annual fee. These fees are especially common for cards that offer rewards or perks.
 
Credit card companies often provide a grace period, during which you don’t pay interest for a new purchase. The grace period is generally between your billing cycle’s closing date and your payment due date.
 
A card’s late payment fee is just what it sounds like — a penalty you’ll pay if your monthly payment is late.
 

Compare cards

Seek out credit cards that meet your general criteria. Visit your credit union or bank, or visit credit card issuer’s websites, to find offers. Then gather information about each credit card — its APR, annual fee (if any), perks and rewards, and such.
 
Compare the candidates, considering their pros and cons, then make your choice. To apply, you’ll need to fill out an application, either online or in-person with the financial institution.
 
You’ll need to furnish several pieces of information such as your:

• name
• date of birth
• mailing address
• contact information
• Social Security number
• income
• employment status
• debt details
• permission for the card issuer to pull your credit report

Before submitting your application, double-check the credit card’s terms and conditions, including the interest rate and fees. Read the fine print so there won’t be any surprises later.
 
If you’re approved, you’ll usually receive your new credit card within a week or two. Sometimes the credit card issuer will have questions or need more information before making a decision. If so, they’ll contact you.
 
If your application is declined, you’ll receive a notice explaining the reason(s). Card issuers are legally required to tell you why your application was declined. If that happens, consider it helpful feedback. Now you know just what to work on before applying for your next credit card. Need help improving your odds next time? Patelco members can get personalized advice from a Certified Financial Specialist.

Cash Advances - Convenient but Costly

You can use most credit cards to withdraw cash from an ATM. You’ll pay interest, however, and the rate is usually higher than the rate for normal charges. Also, there’s no grace period.

Tips for using your first credit card

If you’ve gotten your first credit card, congratulations! Moving forward, it’s important to use it wisely.
 
Try to avoid overspending. When you’re paying with plastic, it can be easy to forget that you’re spending real money. But those charges will need to be repaid — possibly with interest.
 
When paying your monthly credit card bill, pay more than the minimum amount. That will help you pay down your balance more quickly. If you make only the minimum payment each month, you could ultimately spend much more than you intended.
 
Let’s say you buy a nice flat-screen TV for $2,000. You pay for it with your credit card, which charges 17% interest. If you make the minimum payment every month — which is typically around 2% of the balance, or $40 — it will take you 89 months to pay off your TV. Over that time, you’ll pay $1,528 in interest. So that $2,000 television actually cost you $3,528. It’s best to pay more than your minimum payment — or ideally, to pay off your entire balance each month — especially if you have a high APR.
 
In general, try to avoid carrying a large balance. You’ll pay more interest, and carrying a large balance also drives up your credit utilization ratio (the percentage of available credit you’re using). And that can lower your credit score. The average American uses about 29% of their available credit. It’s best to pay your bills on time and keep your credit utilization below 30%, although keeping it below 10% is even better.