They say that great American pastime is baseball. But the stats actually suggest that our real national hobby might be shopping with our credit cards.
Studies show that 55 percent of U.S. adults have credit card debt. Out of those, one in ten carries a balance of $5,000 each month. Whew!
But as a financially-savvy person, you know that credit cards and the associated debt aren’t inherently bad. Using credit cards is actually a sign of financial health, and it contributes positively to your overall credit score.
So when should you follow the crowd and ask the bank for your own piece of plastic?
Keep reading to learn when and how to get your first credit card.
When Should You Get Your First Credit Card?
Credit cards aren’t just a tool to borrow money from a bank. They’re an essential part of your financial life. Your first credit card contributes to your credit score so that you can make more significant purchases, like a mortgage, later. They also help you track your spending, offer rewards, and teach financial responsibility.
So, you want to get one ASAP, right? Sort of.
How Old Do You Have to Be to Get a Credit Card?
You are allowed to apply for a revolving line credit when you are 21. (You can be an authorized user on an adult’s card earlier if they allow it.) Why do you need to be 21? That’s the result of the Credit CARD Act of 2009, which made it difficult for young people to get credit cards.
See, most 18-year-olds don’t have a full-time job, nor do they have the financial literacy to sign up to a credit card agreement on their own. As a result, Congress used the CARD Act to protect both young people and consumers in general by providing a bill of rights for credit cardholders.
If you are 18, you can still get a credit card. But you need both proof of income and a co-signer to apply.
Should You Get a Credit Card at 18 or 21?
You can get your first credit card at 18 or 21. But should you get a credit card as soon as the clock strikes midnight on your birthday? That’s the question. The truth is that age is just a number.
The best time to get a credit card is when you have a job and can make at least the regular minimum payment on the card.
If you can get a credit card, and you have money to pay it off, then you’re ready to make an application.
If you don’t have a steady income and/or you’re the type of person who regularly spends enough to leave you with only $1 in your bank account, then a revolving line of credit might not be a good idea, yet. Don’t worry. There are other options for you to start building credit. We’ll cover these below.
How to Get Your First Credit Card
Deciding whether you’re ready for a credit card and getting said credit card is a far more complicated task entirely.
The complexities of getting your very first account are two-part:
- You need to do a lot of research to find the right card
- You need to qualify for the product you want
Let’s start with the research.
What to Look for in a Good First Credit Card
First of all, let’s start with the best tip for credit card research: don’t sign-up for offers you receive in the mail. Some may be good; most of them are bad. These rates are rarely favorable, and the lenders can border on predatory.
If you are about to get your first credit card, the best card issuers aren’t going to be knocking on your door. It’s the cold, hard truth.
So instead, start your search on your own.
Start With Your Bank
One of the best places to start is with your bank or credit union. They have an understanding of your credit history based on your checking and savings accounts. They’ll know about any direct deposits you have and roughly what you earn. If you bank locally, you may have an even better chance of getting a great card from a bank you trust.
This option is particularly suitable for students who need a credit card but only have a part-time income.
Do Research Online to Find the Right Card for Your Credit History
Second, hit the web. If it’s your first card, then you want to look for cards under the “Fair” credit category (if you have a full-time income). These cards are appropriate for people without much credit history but with a full-time income.
Tip: check your credit score first. If you have other bills, like a cell phone bill, reported to the credit bureau, then you may even have ‘Good’ credit. Then, you can apply for cards that fall under that category.
What do you look for among these cards? You’ll want to weigh these components:
- Interest rate (including introductory interest rates)
- Annual fee
- Minimum repayment
- Missed payment fees and penalties
- Rewards and cashback
- Other charges
All the data for each card is available from the lender before you sign-up.
What to Do if You Have Zero Credit: Secured Credit Cards
If you’re fresh out of the nest and you have a checking account but zero credit history, you may not qualify for a revolving credit limit, even with a full-time income.
People with no credit history still have options in the form of a secured credit card.
A secured credit card is backed by a cash deposit. You provide a deposit, and the card issuer provides you with a line of credit. The deposit covers the bank in case you default, which is why the bank lends to those with subprime credit or no history.
Keep in mind that the deposit is in a different account. If you miss a payment, the bank won’t use your deposit to pay it. Your deposit only gets used if you default on the card, and they close the account.
What should you look for in a secured credit card?
Double-Check that You’re Looking at a Credit Card
First, you need to make sure that the product is a secured credit card. Some less scrupulous banks flog their prepaid cards or debit cards as “secured cards.” These are not secured credit cards, and they will do nothing for your credit. So double-check with the lender that the product will build your credit.
Make Sure the Issue Reports Your Credit History – Good and Bad
Second, you want a card issuer who reports to credit bureaus. Credit reporting is really the only reason to get one of these cards. If they don’t, you are just giving them money with no benefit for your credit score and no chance of getting a better product later.
Ask the lender before signing up what bureaus they report to and when. And ask what information they report: some only report you when you miss a payment but don’t share your on-time payments or low balances.
Ask for the Deposit and Fee Schedule
Once you find a list of contenders, start by comparing the deposit and fees.
The deposit could be as much as 150 percent of your credit line, but in most cases, it will be 100 percent. So, you need to be prepared to put down $300-$500 as a deposit to get a $300-$500 credit limit. Try to steer clear of cards that ask for more than the credit line.
Second, you need a list of fees. The Credit CARD Act we mentioned above prohibits fees that make up more than 25 percent of your deposit in the first year. The fee schedule you receive should include your annual fee, processing fee, and any other fee involved. If you have a limit of $500, the total must fall below $125 in total for the first year. Lower is better!
Remember: you already backed your credit with your deposit. The bank doesn’t need to pull the same amount out of your wallet in fees.
Look for a Preferable Interest Schedule
Third, you should look at the interest schedule. You do need to pay interest on secured cards even though there’s a deposit. You should figure out what day in the billing cycle they assess interest. In particular, you want to avoid any secured card that starts charging interest on the same day.
Are You Ready for Your First Credit Card?
You can start applying for credit products at 18 with a co-signer and 21 on your own. But age is only a number. Everyone benefits from applying for their first credit card when they are ready (i.e., when you have a full-time job and financial literacy). While credit cards are an essential part of building healthy finances, you can get in real trouble – very quickly.
Learning how to get your first credit card is as much about learning to read card agreements as having a full-time income. The key is to remember that it’s better to have a lower credit limit with a fair fee and interest rate than to get a card that could land you in hot water with a single missed payment.
Are you on the hunt for your first credit card? Check out our article on the best credit cards of 2019 to learn what’s possible.