Credit Card Advice for First-Time Applicants

Most people have an aversion to accumulating debt and are cautious about using credit cards. However, credit cards are useful financial tools.

If you use your credit card responsibly, it can help you build credit and achieve a higher credit score. Your credit score follows you throughout your life and will be used whenever you need to borrow money or apply for credit, whether you need a car loan, a student loan, or to qualify for a mortgage.

Credit cards offer greater security than cash. If a card is lost or stolen, you can stop fraudulent use with a simple phone call and get a new card sent to you. If you lose your cash, it’s just gone.

Credit cards also can be very convenient for making retail or online purchases. Some credit cards offer perks, such as extended warranties or price protection. Credit card companies pride themselves on offering their customers consumer protection services.

If you take a hard look at your household finances and plan in advance, you can use your credit cards to control spending. Most credit card companies help you track your purchases and provide online tools to tell you how much you are spending on groceries, gas, clothes, and other categories.

Here are some questions to ask before signing up to get your first credit card:

Is it better to get a card from a big bank or a credit union?

Where you choose to get your new credit card depends on what’s important to you. If you go with a big bank, you may have a big financial organization behind the card, which can offer some comfort. However, big banks and big online card providers are very impersonal, so if you have a problem with your account or need to dispute a charge it may be more difficult to get assistance. As a member of a credit union, you get better service. Remember that credit unions are usually nonprofit, which means they can give you better rates. Since service is more personalized, you usually can talk to a live person with the credit union if you have trouble qualifying for a card or have difficulty making your payment.

What should I know about APR?

The Annual Percentage Rate (APR) or interest rate is usually the primary criteria people consider when choosing a credit card, but APR is not as straightforward as it seems. Some credit cards offer extremely low introductory rates to get you to sign up, and within six months or a year they increase APR substantially. The majority of credit cards have a variable interest rate (APR). Variable APRs are typically tied to an index such as the US Prime Rate and can change frequently, so you may be paying an index rate of 10.99 percent or more. According to Credit Karma, the average APR is hovering around 12.54 percent.

Do I have to pay to use a credit card?

You should be aware of different credit card fees. Some cards charge an annual fee, although they may waive that fee for the first year to get you to sign up. Another common charge is an expedited payment fee, which is charged when you pay at the last minute; it’s less than a late fee, but is still costly. There also are fees for foreign transactions or exceeding your credit limit. Be sure to go through the credit card agreement to understand the fee structure.

Can I use my credit card for cash?

Most credit cards allow you to get a cash advance, which is essentially a high-interest, short-term loan, but the interest rates for cash advances are typically higher than for purchases. They also tend to cost more because of additional ATM and transaction fees. You can use your credit card for cash in a pinch, but it’s generally not a good use of your money.

What about rewards programs?

Many credit cards offer rewards programs. There are cards that offer bonus points that can be used for discounts on shopping or travel, cards that let you accumulate airline miles, and cards that give you cash back for certain types of purchases. If you shop for a rewards card, choose a perk that suits your lifestyle, such as a card that helps you earn travel points or airline miles. However, be sure to read the fine print to make sure the terms of the card work for you.

Are there special kinds of credit cards for first-time applicants?

Most people want to start building their credit early, so they will apply for their first credit card about the time they reach college age. There are a variety of specialty student credit cards. These cards often have cash-back rewards programs and lower interest rates, and some of them have lower spending limits to help limit spending. If you are looking for a first-time card, talk to your bank or credit union about available options.

First-time applicants can be intimidated by the credit card application process, but iQ is here to help you along the way! When considering various credit cards, make sure that you find the right card to suit your spending habits. Whether you need a card for emergencies, are looking to simplify budgeting, plan to make large purchases, or are just trying to build credit, think about the features that best suit your needs and choose accordingly.