A few weeks ago now, I applied for my first credit card. The big package I got in the mail was nothing short of exhilarating. I had applied for a Discover It card for students. It was the perfect fit for me and works for what I need (building my credit). However, this process was much longer than filling out the short application and waiting for the mail to come in. Let’s just say this GYST day felt much more adult than others I had done. I looked for one that would transition past my time as a student and would also not cost anything extra if I paid my monthly bill. As I researched into each and even what sorts of extra features might be helpful for someone in my position, I developed a list of four things to look for/do when applying for your first credit card.
1. Look at student credit cards.
Now, this one may seem a bit obvious at first. Of course, you’d want the card tailored for your life and expenses as a student. However, the benefits go beyond this. Benefits are often a bit less exciting than those offered to those people with established credit. Some cards will give you $20 at the end of each year for your good grades. Others provide a double of whatever cashback bonuses you have earned during your first year and no late fees for your first late payment. Overall, these are great little benefits, but the greatest part is that credit companies make these specifically for people who don’t have a credit score yet. They take a risk on those of us who haven’t had experience in this yet and offer what they can in terms of the opportunity to grow.
2. Don’t apply before you have a steady job.
This may just be something my parents raised me with, but my credit is my job. If I can’t pay it off, I need to learn my own lesson about the value of money. Because of this, you need to have a steady income. The student credit cards above may not have the requirement of some sort of steady income that guarantees you’ll be able to pay back your debt, but not paying it off every month hurts your new credit score. ALWAYS PAY OFF YOUR BALANCE EACH MONTH. There’s not a long history of you paying your debt, so little mistakes can trip you up and hurt you in the long run. It may not be fun to hear this step, but there are lots of on-campus jobs that you can apply to now that start in the fall. Being a desk receptionist myself, the hours are flexible and allow you to work alongside classes. Without this income, even $20 a week from babysitting, it is really unadvisable to get a card that you can’t completely pay off.
3. Know the terminology
It may be a bit dizzying to look at the small print in the application, but it’s incredibly important to understand the terms they use. Your credit company will release definitions for all of them on the paperwork generally. Doing your own research will never be a waste of time. You’re signing a big contract that can affect your adult future, so it’s always (always) a good idea to be sure you know what you’re talking about.
First, APR or Annual Percentage Rate. This is the interest rate charged for any balance held on a card. As a newbie in the credit game, your percentage here will be much higher than your parents’. While annoying or unfortunate, it makes sense as an insurance policy for the company who is looking to get the money you owe them. We’re just more risky to lend to. Next, credit score. This is the number, between 350 and 800, that is assigned to show your ability to pay off your loan. Good scores are 750-800, but that takes a while to build. Other important terms to know are Variable Interest Rate and Prime Rate (which are related to APR) and Revolving credit and secured card. These are just a few that you’ll find as you research. Knowing exactly what they mean will make you more fluent in the language of your own finances.
4. Understand the worst case scenario for your card.
If you’ve gotten this far, you’re probably doing well and on your way to success in your first credit card. You absolutely intend to pay off your debt all the time and you’ve found the card that works for your lifestyle as a student. This is all great, but you need to know what could happen if you miss a payment or carry a balance or if your card is stolen! All these worst case scenarios are not things people plan to have happen, but they happen to lots of people every year. Knowing what your options are in these situations and what sorts of charges you’ll face will allow you to make a backup plan. This might mean a temporary loan from the parents, but it’s all in the name of a good financial future.
The hours I spent researching the process of getting a card and talking with my parents about how best to handle it were well worth the wait. It may be annoying to be prepared like this for the time being, but like any other GYST day it’s a great investment in your future. Happy spending! (Responsibly!!)