5 things to know before getting your first credit card
Before you apply, learn more about responsible credit card ownership.
Getting a credit card is exciting. You’re probably looking forward to the benefits of becoming a cardholder. And with responsible use, a credit card can help you build credit for the future.
But before you apply, it’s important to learn everything you can about how credit cards work. Here’s what to know before getting a credit card.
1. Understand key terms when researching cards
Before applying for a credit card, it helps to study up on the lingo. Here are some common credit card terms you may run into and what they mean:
- Annual fee: Some issuers charge this fee every year to keep your account open. If you’re looking to keep costs low, you may want to consider a credit card with no annual fee.
- Annual percentage rate: As the Consumer Financial Protection Bureau (CFPB) explains, “A credit card’s interest rate is the price you pay for borrowing money.” Credit card interest is typically shown as a yearly rate—known as an annual percentage rate, or APR. Some cards come with different APRs for different types of balances, like purchases and cash advances. You can avoid credit card interest by paying off the statement balance every month.
- Credit limit: This is the most you can charge to the credit card. If you hit the credit limit and want to spend more, you’ll need to pay down some of the balance first.
- Due date: Your due date is when a payment must be received by your credit card company to avoid being past due. If your payment is late by even a day, the issuer may charge a late fee. And late payments may hurt your credit score.
- Late fee: This is a penalty your issuer can charge if you pay your bill late or pay less than the minimum payment.
- Minimum payment: A credit card minimum payment is the smallest amount you must pay each monthly billing cycle to keep your account up to date and avoid penalties and fees. Keep in mind: If you choose to pay just the minimum amount and roll the rest of your balance to the next month, you may owe interest on the balance.
2. Review tips on how to use a credit card responsibly
Using a credit card responsibly can help you build credit over time. That’s because credit card issuers report payment and balance information to the credit bureaus. That information appears in your credit reports and is then used to calculate your credit score.
The CFPB recommends a few ways to use your credit card responsibly and maintain healthy credit:
- Always pay your bill on time. Your payment history is an important part of your credit report. And late credit card payments can hurt your credit and lead to late fees and other penalties. So set a goal to pay your credit card bill on time every month. Use monthly reminders or automatic payments if you need help remembering.
- Read your credit card agreement and monthly statements. Read your credit card customer agreement before you start using the card. This way, you’ll know your due date, fees (and when they might be charged), interest rates and other important information. Then, read through your statements each month and check for errors and suspicious activity.
- Pay more than the minimum if possible. While you’re only required to make minimum payments, paying off your balance—if possible—can help you avoid interest charges and credit card debt.
- Stay below your credit limit. The lower your credit utilization, the better your credit score could be. If you can’t pay off the whole balance every month, aim to keep your revolving credit balance under 30% of your credit limit.
- Limit your credit use. Applying for credit creates a hard inquiry on your credit reports, which could hurt your credit score. Apply only for the credit you need, especially if you’re still learning the ins and outs of managing your credit.
3. Know your credit score
Your credit score plays a role in whether you qualify for a credit card as well as the interest rate you get. Generally, a higher credit score may help you qualify for a credit card with a lower interest rate. Credit cards with rewards programs also may be reserved for those with higher credit scores.
Before applying, it’s a good idea to check your credit score and credit reports. If you spot errors, you can dispute them.
Not sure where to start? You can use CreditWise from Capital One to monitor your VantageScore® 3.0 credit score and TransUnion® credit reports for free—even if you’re not a Capital One customer. You can also get free reports from each of the three major credit bureaus—Equifax®, Experian® and TransUnion. Just call 877-322-8228 or visit AnnualCreditReport.com to learn how.
4. Know your options: Secured vs. unsecured credit cards
If you’re establishing, building or rebuilding credit, you might not qualify for a traditional, unsecured credit card. But you might still have options—like a secured credit card.
A secured card can be used to make purchases in stores and online—just like an unsecured card. But unlike unsecured cards, secured cards require you to put money down as a security deposit in order to open an account.
That security deposit is held as collateral, similar to the security deposit you give a landlord when you rent an apartment. If you fall behind on payments, the issuer may take the deposit. But using your secured card responsibly can help you establish good credit. And that can make you more likely to be approved for a traditional, unsecured card in the future.
5. Check to see whether you're pre-approved for a credit card
Before you apply for a credit card, pre-approval or pre-qualification can help you compare options and find the right fit.
And with pre-approval from Capital One, you can find out whether you’re pre-approved for a credit card before you even apply. It’s quick and only requires some basic info. And it won’t hurt your credit score.
Ready to apply for a card?
Now that you know more about how credit cards work, you’ll know how to use your credit card responsibly. And if you check to see whether you’re pre-approved, you’ll be able to choose a card that’s a good fit for you.
Learn more about Capital One’s response to COVID-19 and resources available to customers. For information about COVID-19, head over to the Centers for Disease Control and Prevention.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Your CreditWise score is calculated using the TransUnion® VantageScore® 3.0 model, which is one of many credit scoring models. It may not be the same model your lender uses, but it can be one accurate measure of your credit health. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion. Some monitoring and alerts may not be available to you if the information you enter at enrollment does not match the information in your credit file at (or you do not have a file at) one or more consumer reporting agencies.