How do I apply for a credit card for the first time? Are some better than others? How do I know which one to pick?
When it comes to credit cards, your balance represents money that you owe to your creditor. Credit cards, unlike debit cards, are not tied to cash that you have. Instead, when you swipe your credit card at a store, you make a promise to pay later. A credit card is like a short-term loan.
Why Get A Credit Card?
It’s important to get a credit card in your name, because it enables you to build a credit history. Having a good credit history allows you to get loans for the big purchases you may want or need in life, such as a car or a house, as well as establish your credibility (and reliability) to be approved to rent an apartment or get a job.
Additionally, having a credit card is convenient because it allows you to track your spending more easily and view your expenses for the month via your monthly credit card statement.
How to Pick Out Your Plastic.
Not all credit cards are created equal, and before you start shopping with your card, you’ve got to shop for your card. Offers with hundreds of perks seem to be everywhere. When evaluating your favorites, there are four main things to keep in mind
- Never pay an annual fee. An annual fee is an annual charge for simply having a credit card. There are too many great cards without fees.
- Find the lowest possible APR. APR stands for “annual percentage rate” and refers to the amount of interest applied to your outstanding balance. Average APRs fall at about 14%, but vary dramatically. In an ideal world, you should be paying less than 10% APR. The better your credit score, the better APR you’ll be able to get.
- Find the highest possible credit limit. A credit limit is the maximum amount you can spend on your credit card. Typical credit limits are $200 to $20,000 on unsecured loans (loans without a claim on an asset), and can be any amount ($1,000 to $200,000 being a typical range) on a secured loan. While we don’t EVER want you to “max out” your credit cards (i.e. spend all the way up to the credit limit), try to find the highest possible credit limit. As long as you continue to pay off your balance every month, your debt-to-credit ratio will be as small as possible, which is good for your credit score.
- Make sure there’s a grace period. Though we never (ever) recommend missing a payment, sometimes mistakes do happen, and you’ll want a grace period for that mistake. A grace period is a window of “breathing room” between a purchase and when interest kicks in. You want to pick a card with a grace period of at least 20 days.
Now that you are familiar with all of the necessary criteria for choosing a credit card, it’s time to start your search. At LearnVest we created a tool called LearnVest Credit Card Finder which allows you to browse by credit card type (such as student cards, cash back cards, etc.), credit type (sorted by how good your credit score is) or issuer (the company that issues the credit card).
Apply for Your First Choice Card
Before you can own a card, you have to apply for one. This might seem obvious, but again, it can be deceptive, what with all the pre-approved offers you’ve probably gotten in the mail. Luckily, applying for a credit card is a lot easier than, say, applying for college.
To apply, you’ll need:
- Your e-mail address
- Your home address
- Your Social Security number
- Your gross yearly household income (can be estimated, or if you don’t have any, can be none!)
- Your employer’s name and phone number (unless you don’t have one)
- Your employment status
You can easily apply online or over the phone. Once the application is complete, the card issuer will either approve or reject you, and sometimes in only a minute or two!
If you are not approved on the first card, don’t worry. Simply return to your second choice card and apply for it. You can keep going down your list until you are approved for a credit card. Once you’re approved, the credit card issuer will mail you your credit card, and you should have it just about a week after being approved.
See LearnVest for more information.