Repeat after me: credit cards are not free money. Credit cards are not free money!
If you’re a responsible spender you probably knew that but too many first-time credit card applicants fall into the overspending credit card trap.
You can stop yourself from the same fate by learning how to open a credit card – as in the one that’s right for you.
Want to learn more? Keep reading.
Get a Sponsor (Co-Signer)
When you don’t have any credit, it can be hard to get approved for a credit card. Yes – we agree that it’s counter-intuitive, how are you supposed to build credit if no one will give you any?
While it can be hard to get credit as a first-timer, it’s not impossible. The most foolproof way is to get a cosigner, which is kind of like a credit sponsor.
Most cosigners are parents or guardians, or in some cases, spouses. They already have well-established credit and they trust you enough to put their own credit on the line for you.
Applying with a cosigner tells the credit card companies that if you can’t pay back your loans – they can. It’s like having someone they can legally default to.
But just because the bank can fall back on them, doesn’t mean you should let that happen. If you mess up your credit, it’ll bring theirs down as well.
How to Get a Cosigner
Okay – now that you know what a cosigner is, let’s talk about how to get one. Step one is to think of a list of well-established adults that you know and trust.
Step two is to figure out if they trust you. Can you remember doing anything that would break their trust in the past? If you’re asking your parents – it’s obvious you’ll have had some ups and downs.
But you still need to show that you’re mature enough to make this decision and that you’ll be responsible.
Step three is to find the right card for you (which we’ll detail below). Once you have a few cards in mind then you can approach whomever about cosigning for you.
Doing this research ahead is extra credit on your end and may work in your favor if someone is on the fence about helping you.
The Application Process: Understand the Terms
When you’re looking at different credit card offers, words like APR and interest rate will jump out at you. Or you’ll get swept away by seemingly awesome reward offers.
And yes – you can have a great reward card, but you need to know what you’re getting into. Here’s a quick credit card vocab lesson.
- Annual Fee: A pre-decided sum, kind of like a membership fee
- Interest Rate: How much extra you’ll pay on top of what you spent
- Teaser Rate: Refers to a period with special rates, which then jump up and get less attractive after the period ends
- Late fee: Money you’ll pay on top of your credit card monthly payment if you forget to pay on time
- Credit Line or Limit: The max amount you can spend based off of how credit-worthy the bank thinks you are (based off history and income)
- Cash Advance: Essentially is like getting cash out with a credit card, but it comes with very high fees
Vocab in Context
The best cards have no annual fees – ever. If you see an offer that says, “No annual fee*”, take notice. That asterisk probably means there’s fine print somewhere that says the annual fee kicks in on your 365th day of membership.
Now its worth noting that some cards come with such great perks that the annual fee is worth it. American Express will put an extra warranty on top of purchases and has some great terms. That’s just an example.
What you don’t want is to think you’re paying no annual fee for life and then find a surprise on your bill.
Credit Line or Limit
Your first credit card will probably have a low line of credit – somewhere around $500 or $1000. Think of it as the banks testing out how you do with small numbers before they take you up to the next level.
You won’t know your credit limit until you’ve applied for the card – so be ready for it to be low and decrease your expectations accordingly.
Finally – let’s talk about interest which is how the companies make their money. Interest is the percentage of your balance you’ll pay per month. So if it has 1% interest (almost unheard of), you’ll pay 1% of your total balance – extra each month.
Lower interest rates are always better – store cards and those with really great rewards may have higher interest – so watch out for that.
Filling Out the Application
After you’ve narrowed down what card you want and chosen someone to cosign (or not), it’s time to fill out the application. You’ll need to know your income level, which includes any money that you get from your parents.
Don’t lie or estimate too much. Being in a range of a few thousand is fine, but don’t go crazy with this. It could get you in legal trouble if you ever have to go to court with the company down the road (though that’s rare).
How to Open a Credit Card The Final Step: Hit Send
After you’ve done everything above you’re ready to hit send on your credit card application. Years ago you used to have to mail it – but lucky you, you no longer need to find a stamp.
Remember to be responsible with it and pay off as much of your balance as you can each month. Follow that advice and you’ll be fine.
Want to maximize your credit score, once you have a card? Learn how.