Sponsored by Capital One
Picking your first credit card can feel overwhelming. There are hundreds to choose from and how are you supposed to know what’s best for your unique situation? Parents, older siblings and friends may give advice – but personal finance is personal. What works for your loved ones isn’t necessarily the best card for you. However, there are six factors you can take into consideration to narrow down your options and find the credit card that’s best for you as you start building your credit history.
1. Ditch the credit card fees
43% of our generation deem little to no annual fee as the most important factor when considering which credit card to get, according to a Capital One survey. This gut feeling is spot on.
There are lots of credit cards out there all with various benefits, but why pay an annual fee (or any fees) if you can avoid it, especially when you’re a fledgling adult just starting to figure out the basics of a budget? Plenty of cards offer no annual fee. Run far away from any company asking for an activation or startup fee.
2. Be sure the credit card you select reports to the credit bureaus
A credit card serves as a simple, effective way to start building your credit history and score. It allows you to get into the coveted 700+ credit score group without taking on any debt (like loans), as long as you pay off the card on time and in full every month. However, you can only get there if your credit card usage actually gets reported to the credit bureaus – or at least one bureau. It’s likely any card you take out would report to at least one bureau, but it never hurts to confirm.
3. Understand the APR and how to read your bill
You want your credit card to work for you. It’s important to understand the terms, especially how the annual percentage rate (APR) on your credit card works. The APR will be the amount of interest you’re charged on those items you bought if you don’t pay off your card in full by the due date. Paying just the minimum due, or anything less than the full balance, will lead you down the path of paying interest. Be aware of the APR rates when you are looking for a credit card and factor it into your decision making. Or even better, just avoid it from the get go by paying off all your purchases on time and in full every month.
4. Access to your credit score
There are plenty of tools out there allowing you access to your credit score, but it is important to find one that is not only FREE, but also offers more than just your number. These days, you can access versions of your credit score for free through a variety of methods, but one of my personal favorites is having access via my credit cards. Four of my six credit cards provide monthly credit score updates. You can also use 100% free tools like CreditWise from Capital One, which is available to everyone – whether you have a Capital One product or not. Tracking your credit score helps you see if your behaviors are helping or hindering your progress. It’s also an excellent way to detect identity theft if your score suddenly plummets when you haven’t changed your own behavior.
5. Fraud security
Listen, fraud happens. Even the most diligent among us might eventually get hit with a dose of credit card fraud. I myself have been victim four times on three different cards and it’s a pain. It would’ve been even more stressful if I were on the hook for any of those charges. Be sure your credit card comes with a $0 fraud liability benefit, so you won’t be liable for that $700 shopping spree someone went on in your name.
6. Rewards shouldn’t be your focus – yet
Rewards are awesome. Trust me, I’ve done my fair share of traveling by leveraging credit card rewards. But focusing on rewards is more of purple-belt-level financial power, and as a first-time credit card user, you’re a white belt. Capital One’s Platinum MasterCard gives those new to credit cards access to a regular, unsecured card with no annual fee. Not only that, the card comes with added perks that will help you build your credit with responsible use, such as alerts and the ability to customize your payment due date.
Once you’ve proven to yourself – and the credit card companies – that you can handle monthly access to credit without getting yourself into financial trouble, then you can consider leveling up to a card with healthy rewards.
How did you select your first credit card and what was most important to you?
Disclosure: I was compensated for this post for Capital One, but opinions and advice are my own. However, there are no affiliate links in this blog post. I will not receive payment if you sign up for any products mentioned in this article.
18 responses to “Your First Credit Card – What to Consider”
The ability to track your credit score is a huge perk with some credit cards. My bank rolled out this feature a couple of months ago and I love it.
It’s the sole reason I got my second credit card. Now, almost all of mine offer free credit scores. Great perk!
I totally agree that you should work your way up to using reward cards. I totally want to do a little travel hacking using credit cards, but I’m not completely there yet. I won’t make the decision to jump onto one until I know for sure I’m fully capable and mentally ready to pay it back in full each month as I charge regular expenses. I gotta be sure!
Be sure to get totally in that pay it off on time and in full each month mindset before chasing rewards. Those rewards can end up costing you dearly if you owe interest.
So far I go for 100% fee free credit cards. I have had three different ones; two that are cash back, ones a Visa, the other is Mastercard and the third was a points card for getting free movies (Scotia Scene card). I’v been happy with all three. I simply do not spend enough to warrant a card with better perks for a fee.
That’s a wonderful thing to know about yourself too. I have two cards with annual fees (one of which was waived and I haven’t passed year 1 and one of which I’ve paid after the initial year). Both are travel cards, so if I just need to check a bag one time per year, then the fee pays for itself. But if that fee ends up being not worth the money, I’d quickly cancel the card.
Yeah. It is definitely a calculation based on the cost of the annual fee vs the usage. Ex. that free checked bag a year, or like many travel cards you get free or comparable travel insurance based on the card for ‘free’, then it is total worth it with the additional points you earn.
Once i start making a bit more $$ and spending more I will upgrade my no fee CC to an annual fee one with a higher cashback %. Certainly helps to have reduced annual fees from being a staff member of one of the big 6 Canadian banks 🙂
I didn’t take the approach of waiting to apply for the higher earning points rewards cards. I jumped right in with my first card in 2012 (Chase Southwest Airlines) and it worked out fine. I also have the Chase Sapphire Preferred but do know that it’s getting harder and harder to get approved for that card though (which is the mothership of all points earning credit cards IMO). My fiance applied for the CSP last year (not his first card and with a 760+ credit score) and was denied. He called the reconsideration line and got approved but I wouldn’t recommend it for a first time credit card user for that reason. Great point about considering the annual fee! The annual fee is something I forget about and then get so surprised when I see it pop up on my statement! I heard you can call and get it waived or close it and re-open a card later on but I haven’t pursued either of those options yet.
Those who are already confident with money probably feel empowered to jump right into the rewards, but I wouldn’t recommend it for most millennials. (I know you’re different :P). And excellent point about the reconsideration line! Not many people know about that trick.
I use Creditwise and aside that this is free, it offers easy-to-use navigation and updates me on a weekly basis.
Glad to hear you use it and like it!
Pretty good advice here but I would ignore APR and only sign up for a credit card if you’re going to pay it off in full every month.
If you can do that, the rewards can be a huge financial boost, but not the standard rewards. The signup bonuses are where you’ll get the best return by far. You usually have around 3 months to spend $1,000 to $4,000 and it’s up to you to decide if you can meet those requirements with NORMAL spending. Don’t go on a shopping spree to achieve the signup bonus goal.
I’d avoid all cards that don’t waive the annual fee for the first year. If they have one but don’t charge it until the second year, you will have already met your signup bonus and received it. You can either cancel before the annual fee is due, have them waive it to retain you as a customer, or have the card downgraded to one with less benefits and no annual fee.
“Travel Hacking” has helped lower our expenses this year while we’re traveling the world to test out early retirement.
Good luck to everyone using credit cards responsibly.
I completely agree about paying off in full — “Or even better, just avoid it from the get go by paying off all your purchases on time and in full every month.” It’s upsetting how many people tumble into credit card debt because they don’t understand what APR is in the first place. This is why you need to at least understand what APR is and how to read your bill.
Travel hacking is a great gift to those who know how to use credit cards properly, but I think the average recent graduate really needs to just get a basic no fee card and ignore rewards until he or she is used to keeping spending in check and paying off the balance on time and in full each month. Then it’s on to more advance levels of PF, like FIRE!
One cool thing my parents did for me growing up was help me build my credit from a very young age. They signed me up for a credit card under my name and I would use it exclusively for gas during high school. They would pay it off every month (thanks for the free gas mom and dad!) so it would build my credit starting when I saw 16 even though I wasn’t working yet.
Once I started working I understood how to use credit responsibly and could immediately sign up for a sweet 2% cash back card! They gave me a great head start in my credit life. I will absolutely do the same for my kids (when I have them!).
I have 2 cards now 1 capital 1 and the other an American express, i keep getting card offers in the mail. The key is to know your limit.
Thank you for these guidelines. Great for people like me who consistently travel with reward miles!
I use it and like it!
I use credit cards to pay for expenses that I already have money for. Then I pay off my credit card every week. I don’t have to pay interest doing it that way. I also get free rewards for doing it that way. I have accumulated enough points to get $125 in giftcards at Walmart. Great post about credit cards.