How to Pick a First Credit Card | brokeGIRLrich
It makes sense to me to be a little wary of using credit cards, but they are one of the easiest ways to start building up credit.
Before getting a credit card, I think it’s important to get in the right mental state. I don’t know about everyone else, but in my family, no one ever really explained this magic plastic card that seemed to just pay for everything to me at all.
You get the magic plastic card, the magic plastic card company tells you how much you can spend ($500, $1000, even exorbitant amounts like $10,000) and you go about your merry way?
My mom wasn’t always the best with her credit cards, so I did see that they seemed to stress her out when she had to pay them, but also that we just used them for everything anyway. And as a kid, if I asked for something, the answer was usually yes. So again, I didn’t think about the whole thing too much.
In case you come from a family like mine, here are a few things I think are useful to think about:
- Don’t spend more than you can pay off in the same month.
- Because credit card interest rates are high.
- And they can become a very scary cycle where you can only make the minimum payments and you never really pay the thing off.
So with that warning, a credit card is just like a more useful form of cash. If you have that cash in your bank account, go ahead and use a card instead of worrying about hitting the ATM. Pay it off every month. Watch your credit score start to soar.
I think in a first credit card it’s important to get one with a low limit. This way you can find out whether or not you’re actually as responsible as you think you are without doing too much damage if you mess it all up.
I think $500 is a great initial credit limit.
If, after some time, you find you are good with credit, go ahead and request a credit limit increase. That will help your credit score.
If you find you keep on putting yourself in a position where you can’t pay off your credit card each month – hold off on that credit increase.
Next, you want to check out the interest rates. On the plus side, if it’s your first card, you’re probably not going to qualify for many of the fancy rewards cards, which come with astronomical interest rates.
How does the interest rate work (FYI – this is called APR when you’re looking at credit card info)?
Well, let’s say you buy a $100 pair of shoes and your card has a 10% interest rate.
If you pay if off before your balance is due (which is usually within a month), you only have to pay the $100 on it. If you need to stretch it out cause you don’t have enough cash, your shoes now cost $110.
So let’s say you wait to pay and you owe the $110. You can now either pay the whole sum off (generally still the better idea) or you can pay it off over time making minimum payments. These vary, but let’s say the minimum payment here is $12.
You pay the $12 and now you have a $98 balance.
You don’t charge anything else the next month (and really, how likely is that?) and now you owe $107.80.
You pay the $12 again and the balance is now $95.80.
The next month this repeats and you pay your $12 and the balance is now. $93.38.
You’ve paid $36 towards the shoes now and still owe $93.38 thanks to interest – which will just continue to be added each month until you finally get the balance down to zero. In approximately 10 lifetimes.
J/K.
Sort of.
This is why it’s not like free money. I think of my credit cards just like debit cards. I only spend when the money is there to pay the credit card off.
That being said – life happens. Mistakes happen. Financial literacy has a learning curve. So make sure your first card has a nice, low interest rate so that if you (like me, most of the time) need to learn by making your own mistakes, they will be minimally disastrous.
Some good low interest cards to look into as of March 2021:
- Upgrade Card (as low as 8.99% depending on credit score)
- Discover It Cashback (as low as 11.99% depending on credit score – though they don’t take Discover everywhere)
- Petal 2 Visa (as low as 12.99% depending on credit score)
- Bank of Americard (as low as 12.99% depending on credit score)
- Citi Diamond Preferred (as low as 14.74% depending on credit score)
- Chase Freedom (as low as 14.99% depending on credit score)
And just a reminder, that as long as you’re paying off your balance monthly, you don’t have to stress too much over those interest rates.
Also, if you’re worried paying off your balance in full is lowering your credit score, I refer you to this post from a few years where I tear that myth apart. I am also living proof it’s a lie.
