Entering adulthood: Guide to applying for your first credit card
Entering adulthood may seem intimidating, but this new season of life brings new financial opportunities — like applying for your first credit card. Applying for your first credit card is an exciting moment, but it's important to educate yourself and learn good credit habits before you start spending.
Let's start with the basics — what is credit? Credit is the ability to borrow money, with the understanding that you will pay it back, and can come in many different forms, one of the types being credit cards. One factor in deciding what credit card you qualify for depends on your credit score. This three-digit number is used by credit lenders to gauge how much credit you should be extended, also known as creditworthiness. The higher your credit score, the more responsible you may appear in the eyes of lenders.
If you've never had a credit card in your name before, you might want to start building a credit history so you can show lenders that you're able to pay back the money you borrow. Here are some ways to start responsibly building your credit:
- Become an authorized user. If you have a family member or close friend with a good credit score, becoming an authorized user on one of their credit card accounts might help you build credit. As an authorized user, you're permitted to use another person's credit if the primary cardmember has added you to their account. You'll then receive a card in your name that's linked to the original cardmember's account. This helps build credit on your end because the account will show up on your credit report.
- Get a secured credit card. Although Chase does not currently offer secured credit cards, some issuers do. With a secured credit card, you can provide money upfront as a deposit, which usually matches the credit limit. There are situations where your credit limit may be lower than the initial deposit you've made. The bank may refund your deposit if you show a track record of payments. Making on-time payments, avoiding late fees and keeping your balance low may help you establish your credit score. If you are looking to build credit history, you may want to make sure that the card issuer reports payments to the three main national credit bureaus (Equifax®, TransUnion® and Experian®).
How to apply for a credit card in five simple steps
Applying for a credit card shouldn't feel complicated. Take a look at the following steps to learn more about how to apply for a credit card.
- Decide which card is best for you. Consider the benefits, perks, features, annual fees and other charges that may come with the different types of credit cards available and narrow down the ones that are most important to you.
- Contact the card company to see if you prequalify. A soft inquiry, a type of credit check that doesn't affect your credit score, may help you determine if you prequalify for the card. Although prequalifications don't guarantee approval, they may help you narrow down options for credit cards that align with your current circumstances.
- Apply. Once you're ready to apply for a credit card you can review the credit issuer's website to learn about your options for applying, such as applying online.
- If approved, carefully read your cardmember agreement. Make sure you're aware of information like how to verify and use your card, how to submit a payment, billing information and details about your interest charges and fees.
- Set a budget. Have a plan or budget in place so that you don't spend more than you're able to pay off on or before your due date. This will allow you to avoid interest charges and help prevent high balances or missed payments that could negatively affect your credit score.
5 ways to use your credit card responsibly
It's easy to get into the habit of frequently using your credit card to pay for your purchases. It's simple and convenient, but plan to use your credit card responsibly so it helps — not hurts — your credit.
- Read and understand the terms and agreements. When getting a new credit card, you'll want to make sure that you carefully read and understand the terms and agreements that come along with it. By knowing your payment cycle, fees, interest rates and rewards details, you could avoid being surprised when you view your monthly statement.
- Always make on-time payments. Your payment history has a significant impact on your credit score. A missed or late payment typically results in late fees and potential penalties, but it may also result in a negative report sent to the credit bureaus. Late payments can stay on your credit reports for up to seven years. To reduce the risk of missing payments, you may want to set up automatic payments so at least your minimum amount due is paid on time. You can also set reminders on your phone or calendar to make yourself conscious of due dates.
- Make more than the minimum payment. If you're not able to pay off the full statement balance, try to pay more than the minimum. Paying a little extra helps chip away at potential debt. It also helps reduce your credit utilization ratio, which is how much money you currently owe divided by your credit limit.
- Avoid accumulating a high balance with unnecessary purchases. Avoid using your credit card to purchase things that you don't need or can't afford to pay off. Making everyday purchases with a credit card is an easy way to help build credit and earn rewards if your card offers them. Just make sure you have money in your bank accounts to cover those purchases by the time your credit card payment is due. Large, unnecessary purchases can take up your available credit, which has the potential to increase your credit utilization ratio and impact your credit score.
- Check your monthly statements for accuracy. You can check your monthly credit card statements either online or when they arrive in the mail to stay on track with your spending. It can also help you spot any transactions that you don't recall making, which may alert you to potential fraud. If you ever spot an unauthorized charge, make sure you report it to your credit card issuer immediately. The quicker you notice and report the fraud, the quicker you can stop the fraudulent use of your credit card.
Credit cards don't have to feel daunting when you know how to use them responsibly. As long as they're used properly, credit cards can be a convenient method of payment that can help you build credit and may even earn you rewards.
Applying for a credit card and using it can pay off in the long run by helping you build a strong credit history. Now that you know how to apply for a credit card and a few ways to manage it, you're ready to take on the world — and your newfound financial freedom — one step at a time.