Choosing your first credit card - a guide for beginners
If you’re young, getting your first credit card can feel a little like a first car, first job or first flat - a marker of adulthood, more exciting than scary.
Older people who’ve never used one before might feel a bit more trepidation.
After all, as much as credit cards can be genuinely useful, they can be a fast way to rack up debt you can’t pay off.
Getting the wrong card, or using it the wrong way, can have serious consequences.
But you can get a better deal on credit than you will anywhere else - if you play your cards right.
If you’ve never gone shopping for a credit card before, the range of options on offer can seem baffling.
There are some simple things you need to know to sort the wheat from the chaff:
What is APR?
APR stands for Annual Percentage Rate.
It’s the interest, plus any additional fees and charges.
This is what you’ll pay for credit. It doesn’t cover balance transfers and cash withdrawals, which may be charged at a higher rate.
APR is governed by law - it’s designed to be a quick way to compare the cost of having different credit cards.
Watch out: representative APR is a guideline. The majority - meaning 51% or above - of people who have that card get that APR.
This doesn’t mean you will. Instead, the card provider will work out your APR based on your credit history, meaning it could be either lower or much higher.
This can be a problem for young people getting their first credit card: if you’ve never had credit before, you don’t have any credit history. Credit card companies will tend to see that as a negative and charge you accordingly.
If you don’t pay off the balance, almost all cards will ask you to make at least a minimum repayment.
£5 or 3% of the balance, whichever is higher, is typical.
In addition to other charges and interest some cards charge an annual fee for the use of the card.
This usually incurs interest just like a regular balance if you don’t pay it in full.
There are often additional charges as well as interest.
Some cards will charge you for using the card abroad, and it’s normal to be charged for going over your credit limit or for late payments.
Introductory interest rates
As a sweetener, many cards offer introductory interest rates that are very low or even 0%.
These can vary in length, usually between three months and three years.
The most common introductory interest rate offer is 0% on balance transfers.
If you’re choosing a card on the basis of its introductory rate, make sure you check how long the rate is valid for as well as what it will revert to when the introductory period is over.
Can I earn loyalty points?
Some credit cards tie in with bank or store loyalty schemes, or with loyalty schemes across retail outlets or restaurants.
This can make a difference if you’re a regular user of these services; so even though it’s a minor point, it’s worth looking at when you’re choosing a card.
Cashback schemes repay some of your money to you at the end of each month.
This sounds like a great service, but remember: it was your money to begin with. There are often strings attached - for instance, you may have to repay your balance in full each month in order to qualify - and a lower rate may be a better deal.
Selecting your card
The choice you make depends on your circumstances and what you want the card for.
If you’re looking for a way to consolidate a moderate amount of debt cheaply, then a long 0%APR introductory period is the crucial metric.
If you’re planning to use the card to have a little more elasticity in your income month by month, then it makes sense to look closely at the APR and any fees and charges.
Once you’ve found the card for you, how do you go about getting your hands on it?
How to apply for your first credit card
Applying for your first credit card doesn’t need to be daunting or difficult.
In most cases you can apply online, by post, or on the phone, and some cards can be applied for in person.
Other than this, the process doesn’t change much: you’ll fill out a form giving personal and financial information and the card provider will check your history with credit reference agencies to see if you qualify.
If you’re concerned that you might not qualify, you can check your credit score with a credit reference agency yourself.
The first thing you need to know is that giving false information on a credit card application form can be seen as an attempt to commit fraud, so tell the truth and be sure of the facts.
The second is that, paradoxically, failed attempts to access credit - including applying for a credit card - can actually harm your credit score (checking it yourself doesn’t affect it).
If you can’t get the card you want, it may be worth improving your credit score by getting a card with a lower credit score threshold, making purchases with it and then repaying them in full to build a record of responsible credit use.
If you’re having trouble with your credit card supplier, remember you can always use the help of a consumer champion like A Spokesman Said.
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