Getting Your First Credit Card

3rd July 2018

By Kurt Wood

A credit card can give you peace of mind, protection and convenience as a consumer. Not only does it give you access to emergency money, but it can make transactions more secure, while allowing you to cover the cost of purchases with easy instalments. When you need to buy something that you can’t afford to settle in one go, credit cards can be a lifesaver.

But for first-time users, the world of borrowing can be something of a minefield. Choosing the wrong card or not understanding the interest rates can turn into a debt trap. It’s therefore important to find a good starter card that doesn’t stretch you beyond your means. Here we share advice on finding your first credit card, as well as tips on building your credit profile in a responsible way.

Why do I need a credit card?

There are many reasons you may want to get a credit card. Other than accessibility of backup funds and flexible ways to fund your lifestyle, a credit card can also be used to improve your credit rating. As a first-time user, it is likely that your credit history is non-existent, which makes it harder to borrow money in the future.

A credit card can be used as a stepping stone, to build your credit score and to prepare you for future lending (such as a loan for a car, or getting your first mortgage). One thing you should bear in mind, though, is that you don’t need a credit card in order to build a credit history. You can do this by paying your bills on time and never defaulting on payments, though a credit card does make it much easier to boost your score, and can help to improve your rating quickly. 

You may also need to get a credit card for certain credit card-only transactions. Some hotels, car rental companies or big sporting events require a credit card payment, so you won’t be able to use your debit card.

What is my credit score?

Understanding your credit score is an important factor when applying for your first credit card. Your score can affect whether banks and brokers decide to have you as a customer. Therefore, building your score is very important for the future.

For young people, this means that the options available may be limited. With no credit history, you may find getting accepted for a credit card hard, particularly the ones with the most attractive rates. If you have never applied for credit before, it’s important to be realistic about what deals you can get.

To find out more about your personal credit profile, you can access your credit score online. You can get a detailed credit report using our online tool completely free of charge.

How do credit cards work?

Credit cards work by giving you an advanced line of credit so you can make purchases, followed by regular repayments to cover your loan. Minimum repayments are required on a monthly or 28-day bill cycle. You must pay at least the minimum amount each time to avoid late charges and damage to your credit rating.

The amount of interest you pay will vary from card to card and can be worked out from your annual percentage rate (APR). This tells you how much interest you can expect to pay across the year. On a very basic level, you can divide your APR by 12 to get your estimated monthly interest. However, the reality of APR can be a lot more complicated, particularly as it doesn’t take into account extra charges and the varying rates for different types of card usage. For instance, the interest rate for withdrawing cash is normally much higher than using your card for purchases.

It’s also important to bear in mind that the monthly minimum payment isn’t going to help you pay off your debts. So, if possible, pay off your balance in full with every statement, or at least in large chunks so you can settle the total in a matter of months.

What’s the best first-time credit card?

Getting approved for a credit card when you’ve never had one before may prove to be a challenge with some lenders, but there are a number of options which you will be able to explore with little credit history.

Student credit card

As long as you are enrolled with an accredited university or college, you should be able to get a student credit card easily. These cards are often restricted with low credit limits, but they sometimes come with great discounts. A student card is fantastic for helping you build a credit history for the future.

A credit card with your bank

Getting a standard credit card with your existing bank may give you a better chance of approval. This is because your bank already has access to your financial data and may be more willing to lend to loyal customers.  

Secured credit card

If you are declined for a standard credit card, a secured card may be a good alternative. Unlike other cards, a secured card requires a cash deposit from you. This is normally the same value as your limit. If you don’t pay your bill on time, your lender will cover your debt by taking from your deposit. The main purpose of a secured credit card is to help you build a good credit rating through regular borrowing.

Credit builder card

Credit builder cards are suitable for people with bad credit and, sometimes, people with no credit history. However, these types of cards come with very high interest rates, so they are only beneficial if you use them responsibly. Paying off balances in full each month is the best way of improving your credit score.

Single-purpose credit card

Single-purpose credit cards refer to things such as store cards or fuel credit cards. Whilst they are limited, they can help to develop a good track record on your credit profile and can also help you budget effectively.

What should I do if I get rejected?

It’s not unusual for first-time credit card users to be declined by lenders. In most cases, there really is nothing to worry about. It’s just a case of not having enough credit history behind you. If you are rejected, do not continue to apply for more credit cards. Every time you apply, lenders will access your credit file and leave a footprint. This can draw up multiple rejections on your file, which can lead to deductions in your credit score.

The best advice is to wait at least three months before making another credit card application. If you continue to have problems, it could be worth looking into cards with co-signers. This could be a parent or family member that will co-sign as assurance for your lender. Essentially by signing, they will be agreeing to take full responsibility for your debt if you default.

Tips for using your first credit card

Once you have your new credit, it’s important to avoid the temptation of over-spending. In order to build your credit rating well, you need to use your card responsibly. Good borrowing behaviour will give you many advantages when it comes to loans and mortgages. Bad borrowing behaviour can damage your chances for years to come.

Here are some of our top tips for using your very first credit card:

Pay off the balance in full each month – the fastest way of building up your score whilst avoiding mounting interest payments is to pay off the balance in full every time you get billed.

Never miss the minimum payment – missing payments incurs extra charges, so make sure you never default. Set up a direct debit or payment reminder so you don’t forget.

Budget carefully – avoid reckless spending by sticking to a budget. Know what you can afford to pay back and don’t spend beyond your means.

Don’t exceed your credit limit – going over your agreed limit will incur fees and can result in your limit being lowered by your bank. A good rule is to stay under 30% of your total limit. This is a good way of keeping your credit score looking healthy.

Find the best first-time credit card deals

When it comes to finding the best first credit card deals, an online comparison is by far the most effective tool. For first-time credit card shoppers, these comparison sites are a quick and easy way to compare different interest rates and offers.

Before you conduct your search, make sure you check your credit score online. This will help you understand your position better before commencing with the application process. It’s also highly recommended that you use a credit card eligibility checker to assess your likelihood of getting accepted with different cards.

Checking before you apply can really save your skin when it comes to your credit rating – preventing those disheartening rejections and giving you added confidence when you decide to apply!

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