How to pick out your very first Credit Card Wisely
It is a choice that everyone has to make at one time or another. Even if you’ve been educated properly about the inherent dangers of using credit cards, if you have any plans on building your credit an possibly owning your own home one day, you will need a credit card at some point. Most people have three choices when it comes to credit cards: get a secured card, get your own student-style card or sign on with mom and dad’s card. Let’s take a look at each one of these options and see which one works best for your financial future.
Let’s start with a secured credit card. A secured card is simply a card where you are asked to put down a down payment that is equal to your credit limit. If you are approved for a secured card with a limit of $500, then you would not be able to use the card until you send the card company $500. This is like an insurance policy in case you default on the card. Secured cards are a bother because, frankly, who wants to have a glorified pre-paid card, but they can serve their purpose. Most secured cards are very good at reporting your good payment habits to the various credit bureaus to help you establish your credit history. And since that is the whole point of getting your first credit card, a secured card isn’t a bad choice. One thing you want to make sure of, however, is that you ask the card company how often they report payments to the credit bureaus. The card you want to go with is the one that reports the most frequently, but be careful, it can bite you in end if you miss payments.
A popular choice is to simply sign on with mom and dad and use their card. While this can provide a much needed safety net in case you abuse the card, it doesn’t accomplish the goal of building your own credit history. Since you are using mom and dad’s account, and their card, you are helping to further their credit history, not your own.
Your final option is to sign up for a student card. This is the option many people take since they sign up for them on their college campuses. A student card is unsecured, meaning it doesn’t have a down payment, and it usually has a fairly low credit limit, say, $1,000. The interest rates tend to be a little higher than normal to help compensate for the number of people who default on their cards, but you do get the chance to build your own credit. If you can go for a year without missing any payments and paying off your entire balance every month, you can call your card company and ask for them to raise your limit. Once you graduate or leave school, the card company will usually upgrade you to their mid-level card, depending on how you preformed with their student card. At that point, you’ve established a credit history that can allow you to get approved for other kinds of loans, such as a car loan. But remember to not miss any payments, you don’t want to undo the work you’ve put so much effort into.