Make sure your first card is a good fit
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I'm going to get a credit
card! Should I get one from my bank that no one has ever
heard of (I am in rural Indiana and
this is my credit union), or from a big bank that everyone knows? What is the difference? I
basically want it for clothes and stuff like that, so would it be smarter to have a store card? I'm confused.
No need for apologies -- stepping out
into the credit world for the first time can be
daunting. But in some ways, shopping for a credit card like shopping for a pair of jeans. You have a vast number of choices, but by knowing what to shop for, you can narrow it down to just a few that make a good fit. Here's how.
the credit card mall. As you've discovered, a wide variety
of places offer credit cards. Banks, credit unions, credit card companies, gas
stations and retailers are the main issuers. So which "store" in this vast
shopping mall should you choose? The
financial institution where you have an established checking or savings account
is a great start, since they already may trust you to be a responsible
customer. Other than that, check out the credit marketplace on this site. It's
broken down into numerous categories, but your best bet is to focus on the
"limited or no credit history" section since you've never had plastic before.
availability. Some credit cards are secured with a cash deposit from you and are perfect for people who have never had credit
before since the bank is essentially letting you borrow your own money. Others
are unsecured and are approved based on an applicant's past credit history and
present income. If you're under the age of 21 and don't have a steady job,
you'll probably need an older person who has good credit to co-sign on a card
for you. This way you'd go in on it together, with both of you being liable for
the account management and any debt that you may incur. If you do have a job
and steady income, you may be able to qualify for a "beginner" card
on your own.
the fit. Just as you wouldn't want the pants
you buy to be too short or too long, you'll also want your credit line (or
limit) to fit right. For instance, a $500 limit may be insufficient for your
needs, but $1,000 could provide you with enough latitude for picking up some
things for the holidays plus some travel expenses. Then again, a $5,000 limit
could be excessive. It could be too tempting to spend more than you can quickly
of the quality. Certain cards are made of especially
fine material -- called terms. The more premium cards won't charge an
application or annual fee, and the interest rate (the finance charges that the
issuer will add to any balance that you don't pay by the due date) will be on
the low side. Mind that you may not qualify for one of these in the beginning,
but will have to work your way up, as you would from a discount store to a
for a broad style. You know how some items in your
closet are only right for certain occasions? The style of a credit card can be
similar. For example, a general purpose card can be used anywhere, but a retail
card can be restricted to a specific line of stores. Also, a card stamped with
the Visa, MasterCard or American Express logo means those cards can be used anywhere those major card networks are accepted.
for designer extras. All credit cards allow you to charge
(which is really another way of saying that you're borrowing money from the
issuer), but some allow you to build points each time you do. You can trade
these points in for cash, airline miles or other cool things. Such rewards cards
are typically available to people who've been excellent credit customers in the
And there you go: Apply to the account
that makes the most sense for you. And when you receive the card, create a
fantastic history by charging regularly, but always paying on time and in full.
Such behavior will not only open the doors to the more attractive credit card
options down the road, but will keep you out of ugly debt.
See related: Credit card glossary terms to know for first-time card users
, FICO's 5 factors: The components of a FICO credit score
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: October 30, 2013