This article discusses what to know before you apply for your first credit card. Before you choose any card or fill any application form, you need to know a lot about credit cards. This articles helps you to understand what to expect and come to terms with a lot of credit card terms.
What to Know Before You Apply for Your First Credit Card ; Do you need a credit card?
A credit card is a card used to get a short-term loan from a financial institution or the card’s issuing bank. It is short term because you must pay whatever you spend at the end of each month. It also demands interest when you do not pay off monthly.
Moreover, with a credit card you can build good credit. This will help you buy a house at a favorable mortgage rate, get an apartment or cell phone, and even get lower premium payments on your insurance. Some credit cards also give cash or travel rewards and many other benefits.
What to Know Before You Apply for Your First Credit Card ; Secured and Unsecured Cards
Secured card is a card that you will pay in a security deposit as your credit limit. The security deposit serves as a collateral for you. In this case, you are spending your own money not borrowed money. Secured credit cards are for people that have no credit or have bad credit score. By using your card responsibly, you can change the card to an unsecured card.
On the other hand, an unsecured card is a card that you do not need a security deposit to get it. You must have a good credit history and score to get this. It also offers some reward programs.
What to Know Before You Apply for Your First Credit Card ; Credit Card Rewards Programs
Financial institutions give rewards programs to their card holders. They give them in the form of sign up bonuses and rewards for purchases. The rewards are financed by the fees that stores, or merchants, paid by the merchant’s bank when you use your card. The fees go to your credit card’s issuing bank. The rewards can be large especially when you make a lot of purchases.
EMV Security Chips
Financial institutions use your personal information such as your date of birth, social security number, and many more to process your credit card application. The information helps them to confirm your identity and verify your credit with the credit bureaus.
Some cards have EMV chip, this keeps your card away from fraudsters. It generates a one-time code with each transaction. The chip only protect you when you physically use your card. It does not protect you when you are buying from online stores.
Your Physical Address
The credit card statement for your account goes to the address you input in your credit card application. If you put a different address from where you live, you may not get your monthly statements. Also, using post office delays your application process since it takes time to deliver.
Because it’s your first credit card, do not know your creditworthiness. They will give you a low credit limit until you show them how responsibly you can manage credit. Also your credit limit as well depends on your income and the type of credit card. If you do not have a high income do not expect a high credit limit.
Do not tell a lie about your income. Give your exact income. However, if you don’t have a stable source of income, get a job or ask a parent or other adult to cosign for you.
Your Credit Utilization Rate
One of the factors for credit score calculations is how much of your available credit you use. It is advisable to use only about 30% of your overall credit limit. Maxing out your credit limit will show you as a big spender and you may run into debt. Be wise and avoid running into debt.
Make the Decision
Once you decide to apply for a particular card, you can do it within seconds online as long as you supply your information accurately. However, before applying, carefully review the card agreement terms and every details about it. This is to help you know if you can afford the card and its costs.
Your Credit History
At the end of each month, your credit card issuer will report your monthly credit card usage to credit bureaus. These bureaus keep the credit history for everybody with a credit card, loan, or other types of credit-based account. They keep every detail of how you use your credit card. When you make late payments or overspend they also keep record. Use your credit card wisely to avoid building bad credit. Responsibly using your credit card gives you access to future loans.