Establishing Financial Independence
Getting your first credit card is a time honored event where you are establishing your financial independence. That time in your life when you are accepting financial responsibility.
However many credit issuers view you during this time with the biggest and most profitable bulls-eye on your back! You are who Every credit card issuer wants to give credit to.
Why Credit Card Companies Target First-Time Users
Brand loyalty, ignorance of how the credit system works – in other words you can be bilked for every penny without questioning the system, and of course the high likely hood that you will over extend yourself and only pay minimum payments for the next 5 years.
I don’t want to waste your time and give you yet another “financial responsibility” speech. What I do want to do is point out is that in today’s economic world you must have a piece of plastic with a Visa or MasterCard logo on it. The days of living with just cash are over. Without a major credit card you can not; rent a car, make purchases online, buy gas at the pump, make purchases over the phone…
Promotions including cash-back offers, gifts, or low-interest rates are really attractive for teenagers and new credit card holders. Of course, promotions are nice and useful. However, it is essential to understand the conditions of having this type of credit card. Interest rates will rise once the introductory period expires. Some credit card companies ask customers to pay annual fees, late fees or have other charges. As a result, such credit cards can create major problems in the future.
Challenges of Getting Approved for Your First Credit Card
However getting a credit card for the first time has become much more difficult in our current economic conditions. The banks have made it much more difficult to get approved. You must actually have some credit meaning have made payments on a purchase in your name.
Assuming you do qualify you will likely be extended a credit card with a limit of around $300 – $1,000 and you will be responsible to pay roughly 18 – 23% APR – this is very high and a very low credit limit.
Unfortunately with credit cards they don’t really work the same as with other purchases where you can have a co-signer. With credit cards instead your parents could make you an authorized user on their account – but this will not help you build any credit and requires A LOT of trust!
Learning how the credit score works is always a challenge for people who have just started using credit cards. Your credit score is based on a many different things. This includes your payment history, amount of debt, length of credit history, and recent credit inquiries.
Maxing out your credit card or paying money you owe late is bad for your credit score. But paying back your credit balance on time and keeping your balance low in relation to your credit limit will have a positive effect on your credit score. Having a good budgeting plan in place while building your credit can help you qualify for better credit cards with lower interest rates in the future.
Why a Prepaid Debit Card May Be a Smarter First Step
Instead we suggest you get a prepaid debit card. This is not a credit card. You will not have monthly payments to make but instead will only be able to spend money you have already deposited in your account.
You will not be responsible for paying any APR %, there is no minimum deposit, no late fees, no monthly payments, no over the limit fees. The only person that knows it’s a prepaid card is you!
It will still have a Visa or MasterCard logo on it and you will be able to make all the same purchases with it as if you had an unsecured credit card. This completely eliminates the possibility of going in debt.
Another way to help people practice good spending habits is to use prepaid debit cards. It works because people have only what is in their account to spend. It will ensure that no one spends more than they can afford. Besides, it will teach them how to budget for future expenses which is a very important life lesson. Prepaid cards often have some really useful features like mobile banking, direct deposit, online bill payments and even fraud protection.
Building Credit the Right Way
Instead we suggest you ask for a co-signer on an Apartment, cell phone (in your name), Automobile… paying these monthly bills will help to establish some credit for you and then when you have some credit you can go and get an unsecured credit card with a low APR % and a high credit limit.
Building up a good credit profile requires a certain amount of time and effort. There is no better strategy when it comes to building up a good credit score than starting off slowly by paying on time every month. In addition, it is important to check your credit report often. You need to make sure that all the information there is correct. This will also help you keep track of how well you’re doing. With better credit, you have the chance to receive better interest rates, a higher credit limit, and more valuable rewards packages.