Being an adult can often translate to “having responsibilities you never wanted or asked for.” One of these responsibilities is credit cards. While credit cards can be a great thing to have in your back pocket, they must also be handled with care.
Now that you are officially an adult, you will likely start seeing credit card offers everywhere you go. Stores will offer them to you when you spend $15; you will get offers in the mail and on various financial websites. Before you decide to sign up for any of these cards, the most important thing to keep in mind is this: credit cards are not free money. They offer to lend you money in the short term for a price. Sometimes, interest rates on credit cards may go as high as 29.99 percent. This means you may end up paying $40 for a $10 burrito, so be careful what you charge.
Here is your crash course so you can confidently apply for your first credit card.
Step One: Credit Check
Before you make any financial decisions, it is important to know your credit score. For people who are just turning 18, your credit rating may be on the lower side, but no need to worry. That is only because you do not have enough credit history for lenders to use to judge your level of financial responsibility. There are many ways to go about building up credit, and we will cover some of them later in this article.
Step Two: Credit Card Offers
When you start getting credit card offers in the mail, saying you have been “pre-approved,” it may be tempting to sign up. However, what many of these offers do not tell you is that you have only actually been pre-approved to receive the other in your hands. You will still have to fill out an application and the credit card company will still run a credit check before deciding whether or not to extend credit. There is still a possibility your application will be denied.
And, with each hard inquiry on your fledgling credit report, your score takes a hit, whether you end up getting approved or not.
Additionally, these credit card offers may not suit your needs. There are hundreds of credit cards on the market today, each designed to suit different needs. For example, people who travel often, whether for business or pleasure, may want to apply for a credit card that offers frequent flyer miles with purchases made. People who use their credit cards frequently and are able to pay them off every month may want a credit card that offers cash back on purchases. Unless the perfect card offer magically appears in your mailbox, the best thing to do with credit card offers by mail is shred them and throw them away.
Step Three: Research and Apply
The best thing to do is research cards that suit your lifestyle and unique financial situation. There are many cards that suit the needs of the recent graduate, though many of them must be secured. This means you need to deposit the money you will be using on the card. So if you apply for a $500 secure credit card, you will need to supply that $500 before you can start spending. This seems to defeat the purpose of a credit card, but it is a great way to begin building credit.
Step Four: Be Responsible
Now that you have done your research and you know what card you want to apply for and where your credit stands, the only thing left to do is to commit to using your new credit card responsibly. Do not use it to buy things you do not need. Do not use it as cash. Make sure you read the fine print before taking out a cash advance. Be careful where you use it, because if your credit card number is ever stolen, you may be held liable for the charges.
Remember, with great power comes great responsibility. Credit cards are a powerful tool and great way to build credit history, but they must be used carefully and responsibly.