A Comprehensive Guide to Choosing Your First Credit Card

Getting your first credit card is a great way to establish a positive credit history, increase your security and convenience, and even earn rewards on everyday purchases. Before diving into the application process for your credit card it’s crucial to have a good understanding of how they work and the benefits credit cards provide. 

Know Your Eligibility

Before submitting your credit card application, it’s important to monitor your spending patterns and financial requirements. Consider your monthly income and expenses, and what your financial goals are. For instance, if you often make big-ticket purchases, a credit card with a rewards program could be beneficial.

Your ability to qualify for different types of credit cards greatly depends on your creditworthiness. To assess this it’s essential to review your credit history and score. If you have a higher credit score, it indicates responsible borrowing habits, increasing your chances of qualifying for a higher credit limit and better interest rates. 

Choosing Your First Credit Card

Before you pick a credit card it’s crucial to do research. Look for cards tailored for those with limited credit history, as they typically offer credit limits and have less strict eligibility requirements. Compare interest rates, fees, rewards programs, and other perks to find the credit card that aligns with your needs and financial goals.

Furthermore, it’s important to note that not all merchants accept all types of credit cards. While Visa and Mastercard are widely accepted by most vendors locally and internationally, credit cards like Discover and American Express (AMEX) cards have limited acceptance, especially at smaller vendors and in certain overseas locations. So, if you go for one of these cards, be prepared in case it isn’t accepted everywhere you want to use it.

For example, some online casinos and gaming platforms may not allow the use of American Express cards due to the higher transaction fees charged by AMEX. If you plan on gambling online, you may need to find a specialized casino where AMEX is accepted. Sergio Zammit says that numerous gambling sites in the US accept it as a primary payment method, but in the UK, gambling sites are not allowed to accept credit cards as a deposit method. Furthermore, despite the use of credit cards at large retailers and service providers, there are still some businesses, especially smaller or specialized ones, that may not accept certain card networks, like American Express or Discover.

Understand the Terms and Conditions

Before applying for a credit card it’s essential to review the terms and conditions associated with it. Understanding the interest rates, fees, payment due dates, and consequences, for payments or exceeding the credit limit is crucial.

The terms and conditions outline details such as the percentage rate (APR) annual fees, balance transfer fees, and penalty charges. Getting familiar with these aspects can help new credit card holders avoid unexpected costs. It also explains the cardholder’s rights and the issuer’s policies, including the grace period billing cycle and minimum payment requirements. Having a good understanding of these beforehand can assist users in using their credit card 

Reviewing and understanding the terms and conditions allows first-time applicants to compare different credit card offers, features, and costs to choose the right one for their needs. Following the terms and conditions by making payments on time and keeping credit usage low, can help you build a good credit history and maintain a good credit score. Being aware of these terms will assist in avoiding unnecessary fees and managing your credit card responsibly.

Avoid Multiple Applications

Applying for multiple credit cards, with the hope for approval quicker,  can lead to several inquiries appearing on your credit report. These inquiries, known as hard inquiries, have the potential to negatively impact your credit score. Each time you apply for a credit card a hard inquiry is. This could cause a temporary dip in your credit score. For those who are new to applying for credit and have limited credit history, these multiple hard inquiries can have a negative effect.

Lenders might interpret applications as a sign of desperation or financial overextension on the part of the applicant potentially leading to application denials. This could further harm the credit standing of first-time applicants. 

Additionally, opening a number of new credit card accounts at once could overwhelm those who are new to using credit cards. This could make it challenging to stay on top of payment dates, spending limits, and other account details. Each application generates an inquiry that remains on the credit report for up to two years. For first-time applicants, it is advisable to be more discerning. Only apply for the credit cards that they are confident you will be approved for.

Assess Repayment Options

It’s important to understand the repayment terms associated with using a credit card. Make sure  you are aware of the payment required, the date, and any additional charges, for late payments. Consider whether you can manage your balance responsibly without accumulating debt. Creating a budget and monitoring your expenses will help you stay on top of your payments. 

Keep in mind that the terms outline the payment and its due date, which are crucial for avoiding costly late fees. Additionally, they detail the card’s interest rate, including rates or penalties, for late payments. Understanding how interest accrues can prevent charges, especially if you carry a balance. Failing to make payments or missing them entirely can affect your credit score and be reported to credit agencies. Adhering to the payment terms will support you in building and maintaining a credit history.

Build Your Credit

To build a strong credit score, the two most crucial factors you need to consider are payment history and credit usage. 

• Payment history: Making payments on your credit card on time is vital for building and maintaining a good credit history. This is the single most important factor in determining your credit score, which makes up at least 35% of your FICO score.
• Increased approval odds: Should you have no or limited credit history, you could have a harder time being approved for a credit card. Building up your credit history first is better, and can improve your chances of getting approved.
• Better terms: If you have an established credit history and a higher credit score, your chances of qualifying for a credit card with lower interest, fewer fees, and better rewards programs are much higher.
• Improves future chances: Having an established, good credit history improves your chances of being approved for loans, mortgages, and renting an apartment. Building your credit is important to attaining future financial milestones.

Avoid Carrying A Balance

Carrying a small balance on your credit card can negatively impact your credit score. This is because the amount of credit you use compared to the credit limits and balances, is an important ranking factor in determining your credit score. When you carry a small balance on your credit card, you will be charged interest on that balance. Paying interest is like throwing money away, there is no real benefit to credit score, carrying a small balance.

Monitor Your Credit Card Activity

Regularly monitoring your credit card statements can help you keep track of your spending. The importance of monitoring your activity includes:

Detect and Prevent Fraud

Credit card fraud and identity theft are prevalent. In 2023, there were more than 380,000 cases of credit card fraud reported to the Federal Trade Commission in the U.S. Despite issues to combat these issues, credit card fraud and identity theft remain a growing threat. Monitoring your credit card statements regularly can help you identify and report any unauthorized or suspicious transactions. 

Identify Errors

Reviewing your statements can help you spot any fraudulent charges or fees applied to your account. Card issuers could accidentally apply the wrong fees, interest rates, or any other charges. Monitoring your statements can help you quickly spot mistakes. Catching issues early can help you dispute the charges and protect yourself from additional fraud.

Understand Your Spending

Regularly reviewing your credit card statements can provide valuable insights into your spending habits. You will be able to see a detailed breakdown of where and how your money is being spent, like dining out, if you’ve gone over your set budget gambling at a crypto casino, online shopping, and more. This allows you to recognize patterns of overspending, help you have a clear understanding of where your money is going every month, and can help you create an effective and more accurate budget. 

Avoiding Unexpected Fees

Closely tracking your credit card activity can help you catch any unexpected fees, duplications, or changes to your account terms. This can help you quickly address the issue with your card carrier. Although many card issuers keep you informed about any updates to the terms of use, changes to rewards programs, increases to your annual percentage rate, or removal of certain features do happen. Keeping an eye on your statement can help you switch to a better option that fits your financial needs and goals.