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When you’re ready to open your first credit card, it may be difficult to know which one to pick. Perhaps your mailbox is full of tempting offers or you’ve gone down the Internet rabbit hole doing your own research. Either way, finding the best first credit card for you may feel overwhelming. It’s an important choice because it can help you establish or grow your credit score. If you mismanage your credit card, you can face financial turmoil. So, it’s wise to carefully consider your choice. Read on to learn more about what to look for in your first credit card.

WHAT’S YOUR GOAL WITH THE CREDIT CARD?

There are three common reasons people take out a credit card:

• Building credit. Credit cards can help boost your credit score as you borrow and repay your debt. Every month, the company that issued your credit card will report your activity to credit bureaus (the companies that compile credit reports). They’ll report whether you made a payment or missed it, if you met the minimum payment, and whether you made your payment on time. They’ll also report the amount of credit you’ve borrowed against your limit. If building credit is a priority for you, you won’t need to worry as much about shopping around for interest rates because you should be paying off the card’s balance each month.
• Covering a large expense or purchase. Whether you’re paying for an emergency expense, such as a home or auto repair, or aspiring to take a vacation, you may need a credit card to cover a large expense. As a first-time credit card holder, you may only be able to qualify for a card with a credit limit (the amount of money you can charge on the card) of a few hundred dollars. Shop around for a card that will allow you a credit limit larger than you need for your purchase. It’s also important to evaluate the interest rate. If you’re making a large purchase, you will likely be paying it off over time. Interest will add on to the overall price, and it can cost you greatly if you’re paying a high rate.
• Rewards. Some individuals take out credit cards to earn incentives such as cash back, free trips, airline points, hotel stays, and gift cards. If this is your goal, annual fees and interest rates may be less important to you than the rewards themselves.

THE BEST TYPES OF CARDS FOR BEGINNERS

As a credit card newcomer, the best cards — in other words, the ones with the best rates and highest rewards — won’t be available to you right away. You’ll need to build your credit history and achieve a credit score of more than 690 to access those. Fortunately, there are many products aimed at people with little or no credit history.

Here are a few examples:

• A student card: These credit cards are designed for college students. These basic credit cards often have low limits and no rewards programs.
• A secured credit card: This type of card functions like a regular credit card; however, it’s “secured” with a cash deposit upfront. Your credit limit usually matches the amount of your deposit. If you miss a payment, your deposit covers the balance. Because of this, people with little or no credit can more easily qualify for these credit cards and use them to build their credit.
• A credit card you pre-qualify for: Occasionally, banks or credit unions where you have an established history will extend a credit card offer. They use your previous financial history to evaluate whether you’re a worthwhile risk for a credit card, even if you don’t have prior history of using one.

RATES AND FEES DECODED

When applying for your first credit card, you might be unfamiliar with some of the terms associated with holding a card. Let’s demystify some of these terms.

• Annual Fee: Companies that issue credit cards may issue a fee to cardholders annually simply for having the card.
• APR (Annual Percentage Rate): Credit card companies apply this interest rate to balances you carry from month to month. Depending on the type of card you qualify for, there may be different rates applied to different types of funds, for example purchases, balance transfers (funds moved from a different credit card), and cash advances (cash withdrawn from the card such as at an ATM). It’s important to know that the issuing companies may change the rates without your knowledge. A drastic change in your credit score may increase your interest rate. Your card may also have penalty APRs, which come into play if you miss a payment. Also, keep in mind that the APR a company advertises and the one you qualify for may be different. That’s why companies often use the language “starting at” or “as low as” to describe their interest rates. These are often the interest rates that people with excellent credit qualify for. If you have little or damaged credit, expect to pay a higher rate.
• Foreign transaction fees: These fees are charged only when you make a purchase outside of the U.S. Typical fees are 3%.
• Late fees: These fees apply if you pay your bill late — even a day late — and/or you don’t pay the minimum payment (the smallest amount you can pay each month to keep your account up to date.)

RED FLAGS

We want you to be a savvy shopper when it comes to selecting a credit card, so watch out for cards that promise an incentive for signing up. (Get a free t-shirt! Earn a free pizza on us!) They’re often trying to distract you from the bottom line and come with hefty fees and high interest rates.

Now that you know more about the types of credit cards available and how they work, we hope you’ll be able to select the best credit card for you. Learn more about the State ECU credit card and see if it’s a good fit for you.