If you are over the age of 18 and have not yet applied for your first credit card, this is for you. If you are over the age of 18 and have more credit card debt than you would like to publicly admit, this is less for you, but we should talk about that because honey, I feel you!
If you don’t have a credit card, you’re probably wondering why you even should. After all, they call the young folks today the generation of debt. According to the Federal Reserve Bank, Americans have racked up $1.3 trillion of student loan debt, more than double the amount of debt carried by Americans just eight years ago. That debt is growing at a rate of $3055.19 per second. Wheeee!
We are putting off owning homes, buying cars, and making babies in record numbers, and queer and trans folks are dealing with this in addition to issues like workplace discrimination, barriers to creating and being respected as families and parents, and overall higher rates of economic insecurity.
So here we are and you are thinking, Why are you even bringing up getting a credit card? Isn’t that the worst possible thing I could do?
Here’s the thing, for those of you who are not planning to live off the grid: if you ever plan to own property, get a loan for a car or a piece of furniture or a household appliance, additional school loans or loans for your kids, you need a history of decent credit. Debit cards don’t count towards your credit score. If you have school loans, they do! Additionally, very few of us these days have an actual emergency fund. If you, like me and like most people, don’t have a few thousand dollars sitting in a bank in case you have a medical emergency or your face explodes, a credit card is not a bad thing to have as an emergency-only back-up plan.
But all credit cards are not created equal. Here’s what you want to look for and consider when applying for your first card.
Things a Good Card Must Have
So maybe you see those fancy black cards or diamond cards or whatnots on commercials and think those are the best bet. Well, they’re very nice, but they are also for the 1% or at the least, people with lots of money who aren’t getting their very first credit card. You want a card that can grow with you. Look for a card with:
- No annual fee: The more perks a card has, the higher the annual fee. However, you really just need a basic card and you likely can only get a basic card if you have limited credit history. The only time an annual fee card might be a good idea is if you are getting a secured card to help repair a bad credit history (more on secured cards below).
- Low APR (annual percentage rate): The APR is a fancy term for the numeric representation of your yearly interest rate, which involves math that you really don’t have to know. Just know that a lower APR is better. 23.9% APR is very high. Less that 19.9% APR is ok. Less than 14.9% is very good. Less than 9.9% is great. Less than that is almost impossible in 2015. (I had a 4.9% rate on my first-ever credit card almost 15 years ago, but those days are long gone.) If the card has a special introductory APR rate, also look at the APR after the intro period ends (usually a range of possible APR’s based on your credit-worthiness). Also, look at the penalty APR, which are typically quite high. If you miss a payment, the issuer can bump you up to the penalty APR immediately.
- 0% introductory APR: If you have a little bit of credit history already and a fair credit score, you may be able to get a card with a 0% introductory APR. This is often a great deal. Again, just be sure that the regular APR rate isn’t extremely high.
- A fair grace period (typically 30 days): This is the amount of time you have to pay off your balance before you are charged interest. You could theoretically pay your balance in full each month and never pay interest on your purchases. Most credit cards bill monthly, so you have until your next credit card statement to pay off your charges.
Things a Good Card Might Have
- Rewards Programs: No annual fee cards don’t tend to have massive rewards programs, but you can easily find a card that will give you airline miles, 1%-2% cash back on purchases, discounts at online retailers, statement bonuses, and other rewards perks. If you have a fair credit score, you should be able to get a card that will give you some rewards while you build your credit history.
- Perks at Your Favorite Store/Airline/Hotel/Capitalist Megastore: If you typically fly the same airline to see your long distance partner or you often stay at the same hotel chain for work or fun or you like to shop on Amazon.com, you can totally get a credit card that will give you extra rewards at those places and even help you earn free flights/nights/stuff with your everyday purchases. Hurrah!
- Car Rental Insurance: Many cards come with car rental insurance and collision coverage included, if you rent the car with your credit card.
- Trip Cancellation Insurance: Some cards also cover your cancellation fees if you have to cancel a flight at the last moment.
- Student Card: Having very little credit history doesn’t mean you’re locked out of getting a decent card if you’re a student. Student cards, offered by most banks, are particularly for younger folks with little to no credit history and a limited amount of income. The spending limits tend to be low, but that’s not necessarily a bad thing. You can also check and see how and when you can upgrade your student card to a regular card when and if you want to.
- Secured Card: If you already have a poor credit score, getting a credit card can be really challenging… near impossible if you have a messed up credit history. A secured card may be your best option. Generally, a secured card isn’t the best deal because there tends to be an annual fee and the spending limits are very low. How it works, though, is that the card links to a savings account. The savings account is collateral and your account limit will be what is in the savings account. So the bank knows there is cold hard cash available to them if you don’t pay your card. And you get to start building or rebuilding your credit history. Hooray!
Other Things to Consider
- Do you want to owe money to a bank? Getting a credit card is possibly one of the most capitalist things you can do. I mean, probably not, but kind of. If getting in bed with a bank makes you feel like you need a scalding hot shower, there are some other options. Look into your local credit union or, if one exists where you are, a co-operative banking institution. These banking institutions are member-owned and can still issue credit cards and handle all your other financial needs. In fact, credit unions sometimes have the best rates on home and auto loans, so if that’s in your future, it’s good to sign up with one now.
- How will you use your new spending power? Some advocate that you only use your cards in emergencies. Like abstinence-only sex ed, this would be foolproof advice, except it doesn’t work for most people. Also, you will build your good credit faster if you are actually using your cards. Just keep your balances low. Don’t spend more than you are able to pay off quickly (advice that I have learned the hard way and am still paying for). Don’t treat credit cards like a loan (again, advice that would have helped me a decade ago). To build and maintain a good score, you should strive to not use more than 30% of your available credit at any time. But really, pay your bill each month. On-time payments are a must. Some will say to pay your balance in full each month. It’s not the worst advice. But if you want to build your credit score, you should actually carry a small balance from month-to-month, a manageable balance. Like, you would be able to pay it off in full quickly if you had to.
- How many cards should you get? Slow down, Bessie. Start with one card. Opening more cards in a short period of time can hurt your credit score. Also, this is a new thing, so start slow until you are sure you can handle the responsibility of more credit.
- Do you know your current credit score? Before you even start applying, check out your credit score and check your goddamn credit report. Your report is a detailed record of all your credit history, which includes info on your trade lines (credit cards, school and car loans, mortgages, that computer you financed at Best Buy), public records (unpaid utility bills, bankruptcy reports, liens, and overdue debt), and credit inquiries (when a bank or lender looks up your credit report). Your score is a numeric representation of your credit worthiness (how much you are to be trusted with money) and a higher score is what will open the door to getting larger loans (like a mortgage) in the future. You can get your report annually from the three major credit bureaus for free. And you should totally check it, even if you don’t care about ever getting a credit card. Because if someone ever steals your identity or hacks your accounts, that might ruin your credit and you want to catch and dispute those charges as soon as possible. You used to have to pay to see your credit score, almost always. However, there are ways now to monitor your score for free. You can use a program like My Bankrate to check your report and score for free, even if you have very little credit history. Many major credit card companies and banks are now offering credit scores to their customers online for free, so check if you have a current bank and/or card with a major carrier.
How to Build a Really Good Credit Score
- Make payments on time. This is the most important thing, ya’ll.
- Use 30% or less of your available credit. This is why, after you’ve established a credit history, having multiple cards isn’t necessarily bad. The higher your available credit, the lower your credit usage. Like, if you have a $1000 credit limit on one card, you should try to never use more than $300 (30% available credit), but if you have a $2000 total credit available on two cards, that $300 is only 15% of your total available credit. MATH.
- Keep your card for a long time, and use it. The longer and more frequently you use your credit, the more your score will ascend to greatness.
- Think about different types of accounts. Do you just have a million school loans? Or do you also have credit accounts, other loans like mortgages, etc? The harder an account is to get, the more it reflects positively on your score. Mortgage accounts, for example, are a big A+ on your account (as long as you are making your current payments) because they are hard to get — seriously, I know this for a fact.
- But also, don’t start too many new accounts. The more accounts in voluntary inquiries (what happens when you apply for credit and a lender checks your score with your permission) you have in a period of time, the lower your score. Yet another reason to start with one card when you are just building credit.
The Real Deal
You may be reading this and thinking, “Yes! I am so prepared now to get my first card or a new card! This is very good information!” I hope that is what you are thinking. You may also be reading this and thinking, “It’s too late for me. I’ve already made all the bad choices. This is making me have a panic attack.” Well, if you are in the latter group, I’m just going to put out there that I’m there, too!
I learned all this good stuff about credit after I’d already racked up considerable credit card debt. Plus, I was underemployed for a period of time after college and made the poor choice of relying a little too much on my credit cards. My spouse and I are still working on paying off our many debts and will be for decades. However, we are doing OK. We have still managed to buy a house and plan a bit for the future, even. I’ll never be rich and it’s hard to imagine ever being 100% debt free, but I know I’ll get closer to that in time. Over the past decade, I’ve watched my score go from the 500s (pretty low and sad) to the mid-700s (very respectable) due to paying on time, learning a lot about how credit works, and monitoring my credit score and reports. Perhaps paying off existing cards and fixing debt is another article for another time, but I just want you all to know that, despite having all this knowledge about credit cards, I did not follow my own advice. And I’m still going to be fine.
We don’t talk about money enough because it’s uncomfortable and social norms say it’s rude. But damn, our generations have really been hit hard by the economy. And our community is especially vulnerable. We have to talk about it to help each other survive it! If you have experience with credit cards or other tips you want to share, post them in the comments! Let’s learn and thrive together!