If you’re considering taking out a credit card for the first time there are few things to get your head around before applying.
You may be a young person or student who’s never had the opportunity before, or you may simply have never needed one in the past. But circumstances change, and a credit card can be a great way of making those bigger purchases that may otherwise be just out of your reach.
Credit cards do come with some risk, but as long as you understand the system and spend responsibly then you can use them to your advantage.
Before taking out your first credit card, take the time to understand what they are, what the benefits are and which type of card is best for you. Learn more about the advantages and disadvantages of credit cards.
So once you’ve decided that you’re going to take out a credit card, where should you start? It may seem easier to apply for the first card that sends you advertisements, or nip into your own bank, but there are many different types of card, each with their own positive and negative points.
Terms to Understand
APR stands for Annual Percentage Rate, and in a nutshell is the monthly interest that’s charged on the balance of your card over a year. It takes into account the interest on the balance as well as any charges, so can be tricky to get your head around.
Obviously the lower the APR the better, and it’s a good way to compare credit cards like for like. If you’re planning on paying off your credit card bill in full every month, then you won’t need to worry about the APR.
The credit limit of your card is the total amount you can spend on your card, and includes purchases, charges and interest. You may think that getting the highest possible credit limit is the best thing to do, but don’t forget that the higher the balance on your card, the more you’ll have to pay off every month.
Minimum payment refers to the smallest amount that you need to pay off your credit card every month, as long as there’s a balance outstanding.
The way in which it’s calculated differs between different types of card, but it’s recommended that you don’t just stick to the minimum payment as interest charges are included in it, so you’re likely to only be paying a tiny part of your actual balance.
Types of Credit Card
Credit-builder cards are perfect for first-time credit card holders who may not have any credit history, or people with a bad credit score. Typically having high interest rates and low credit limits, it’s essential that you spend sensibly on one of these cards, and pay off as much, if not all, of the balance you can every month.
They help to build a credit history for card-holders, which is essential in applying for other types of credit in the future.
Reward credit cards
Reward credit cards can be a great choice if you know you’ll be able to pay the balance off in full every month, otherwise the typically high interest rates on these cards could outweigh the benefits. Rewards vary, from points that you can spend on things like flights, cash back, shop vouchers and more.
0% interest cards
Another type of credit card that’s a good deal if you’re confident that you’ll spend and manage the card responsibly is a 0% interest card.
These cards pretty much do what they say on the tin, with 0% interest on purchases made over a set time period. It’s important that you don’t miss a payment if you have one of these cards, as this will usually mean you’ll lose the zero interest.
Make sure you know exactly when the deal ends, as interest charged after the agreed period will be huge.
Don’t be afraid of credit card debt
Although you may be hesitant to get into debt, if used in a smart way credit cards can offer you greater capacity, flexibility and protection when purchasing goods and services.
As long as you do your research first, spend sensibly and make regular payments, a credit card can be a valuable tool.
- How to teach your teenager about credit cards – Our tips on how to prepare your teenager for their first credit card
- What’s good about credit card? – Learn more about the perks of getting a credit card and what to watch out for
- First credit card? – Read how to use it wisely
- What can I use my credit card for? There are some things you should definitely not pay for with a credit card