If the concepts of loans and credit are new to you and you’re looking for a way to improve your credit score, you’re probably wondering if you should get a credit card.
The short answer is yes— the right credit card, used appropriately, can help you build your credit. But there are a number of things to keep in mind before applying for a card.
In this article, we’ll help you understand who should get a credit card and point out some common mistakes to avoid as you work to build your credit history.
How to get your first credit card
Once you’ve decided which card you want, the actual process of getting a credit card is fairly straightforward, so we’re going to focus on what you need to know before applying for your first card.
What is a credit score and how is it calculated?
Before diving into credit cards, let’s quickly review credit scores and where these important numbers come from.
Your credit score is a number, typically between 300-850, calculated to reflect your creditworthiness—that is, how likely you are to default on any line of credit (like a loan) you’re granted.
Lower scores reflect low credit-worthiness, which sends the signal to lenders that the person is less likely to pay them back, while high scores, as you might imagine, suggest that there’s a higher likelihood the lender will be repaid.
Those with higher credit scores have greater access to financial products such as mortgages and loans, and can often secure a lower interest rate because the lender believes them to be lower risk.
There are many types of credit scores in the U.S., but the different credit reporting agencies that generate the scores use similar criteria to evaluate borrowers, so your scores shouldn’t differ greatly.
The factors used to calculate a credit score can include things like payment history (whether you’ve made past payments on loans, credit cards, etc., on time), how much of your total credit you use at any given time (referred to as ‘utilization’), the length of your credit history, and the types of credit you’ve used.
How to build up your credit history with a credit card
Your credit card limit and payment history are reported to the credit bureaus (the companies who calculate credit score), so getting a credit card is one of the most straightforward ways to start building up your credit.
Making your payments on time, using only a small percentage of your limit each month, and keeping the same card for a number of years can all positively impact your credit score.
In addition, any credit cards beyond your first can help you further build credit because they add to your total credit limit which and decreases your utilization rate (as long as you don’t increase your spending.)
Other ways to build your credit
Most sources of credit (including credit cards, loans, and mortgages) are reported to credit bureaus, meaning on-time payments for these services count positively towards your credit. If you’re paying off a student loan, for example, positive repayment history can help your credit score.
One less straightforward way to build credit is to have your parents add you as an authorized user on their credit card account(s). Technically, you won’t be liable for the bills on the account as an authorized user, so the credit score impact won’t be massive—but it can help those with little or no credit history.
How can I get a credit card if I have no credit?
Chances are you’ll have little to no credit when you first apply for a card. Luckily, credit card companies understand that not everyone has a track record of holding credit cards, loans, and other credit products, so there are a number of options available for building credit.
Secured credit cards can be a great way to get started establishing your credit. Secured cards require you to put down a deposit that determines your credit limit. With a secured card, there’s no chance of spending more than you have, so you can build credit without having to worry about your spending getting out of control. Some of our favorite secured cards include the Discover it® Secured Card and the Citi® Secured Mastercard®.
If you’re a student, you’ll have even more options with student cards. To get started, check out the Citi ThankYou® Preferred Card for College Students and the Discover it® for Students.
What should I know before getting a credit card?
Perhaps most importantly, you should know that credit cards are not a free pass to spend more money than you have.
Other key things to keep in mind are:
- Interest keeps building: The interest on credit card debt can add up and quickly become unmanageable. To avoid accruing interest, pay your full credit card balance each month
- Applying for a credit card will affect your credit score: Each credit card application will generate a “hard credit pull”, which counts against you in calculating the total score. This mark will go away after a few years, but it’s generally a good idea to do your research and apply for a card you really want—and that you think you’ll have a high chance of being approved for
- Fees: You should also familiarize yourself with the fees associated with the specific credit card you’re considering applying for. These might include fees for balance transfers, cash advances, international transactions, and late payments, but check the terms and conditions for more specifics
- Rewards and benefits: Most credit cards come with some type of added benefits, even if they don’t offer rewards. This could include rental car insurance, purchase protection, and more. Research the benefits of the card you decide to go with so you can fully take advantage of what it offers.
You can get a more thorough understanding of how credit cards work here.
What’s a rewards card and can I get one?
Rewards cards are generally offered to those with good and excellent credit. In addition to helping cardholders build credit, they also offer points on purchases that can be exchanged for various types of rewards, such as cash back, free flights, hotel stays, or statement credits for certain types of purchases.
Some cards available to those with poor credit (such as the Discover it® Secured Card) do offer rewards, so it’s worth exploring your options. But the best rewards are typically reserved for those with excellent credit, so you might have to wait until you’ve built up your credit history before applying for one of those cards.
What should I look for in a credit card?
The short answer is that it really depends on what you want to get out of the card—and your credit history.
If your primary goal is to build credit, it might be worth getting a card that allows for increases in credit limit after you’ve made a number of payments on time. While the limit on these cards tends to be low in the beginning, gradually increasing it over time adds to your total credit limit—one of the factors accounted for in your credit score.
In addition, consider some of the other features that come with the card, such as trip insurance or free international transactions, and choose the card that offers benefits you’re most likely to use.
If your credit score is already high enough, you may be eligible for a rewards card. In this case, look for a card that rewards you for the purchases you make most frequently (if you travel a lot, for example, choose a card that offers bonus points for flight purchases), and that allows for reward redemption in a way that makes sense for you.
Also, keep in mind that many rewards cards charge an annual fee, so take this into account as you compare rewards cards.
Applying for a credit card
Now that you know the basics of getting a credit card, you can start looking at what’s available given your credit profile and the type of card you’re in the market for.
If you need help narrowing down the options, check out the Credible credit card comparison tool, which allows you to filter by card type, credit score, and a number of other factors. Once you decide on a card, you can apply online directly with the credit card company—but remember that an application will result in a mark against you on your credit report, so do your research before applying.