Getting your first credit card is an important step towards financial adulthood, but remember with great purchasing power comes great financial responsibility.
There is a lot of fun to be had when you use your card. Before you start spending, however, there are some things that you need to understand.
Getting your first credit card in the UK will give you more financial flexibility and credit opportunities, but with greater purchasing power comes greater financial responsibility.
The first step is to think about how and why you need a credit card. Is it to buy one-off large purchases and repay them over time? Do you want the flexibility that comes with buying items now and paying for them in a month’s time, or do you want the extra reassurance that comes with a credit card in terms of consumer protection?
You need to understand how to use your credit card correctly. This means knowing:
What your credit limit is
What you can and cannot buy with it
How much your first credit card UK will cost you
Any fees you may need to pay
How much your minimum monthly repayments are
Used properly, credit cards are a valuable financial tool. If you spend on them in a way that you can comfortably afford, and you never miss a monthly repayment they can build up your credit score.
Your credit score is important if you ever want to apply for a mortgage, loan or another credit card in the future. This is because lenders and banks look at your credit score to decide whether they will approve your application for a mortgage or credit.
The other advantage of credit cards is that they are very flexible and offer some attractive rewards and perks. You can earn money, travel and gifts with rewards program because many credit cards offer frequent flier miles, points and cashback.
In addition, a credit card gives you protection on your purchases if the goods or service cost between £100 and £30,000. This can be very useful if you are buying something big in advance like a flight or booking a stay in a hotel, where there is a risk of the company going bust.
Read more on all of these in the comprehensive Uswitch guide to credit cards.
In order to find the best first credit card for your needs it is important to consider the following questions:
When a lender is deciding whether or not to approve your application for a credit card, they will look at your financial profile and your credit report. If you have never had a credit card before, perhaps because you are young or you have had problems with credit in the past, some credit card companies may not offer you a first credit card. Others may offer you a first credit card but your credit limit – the maximum amount you are allowed to borrow on your card each month – may be lower than for other customers.
It is important to think about how you will repay any borrowing.
Credit cards can be free to use if you always stay within your credit limit and always pay off your balance when your monthly bill arrives. Although some credit cards carry yearly fees, you are unlikely to be offered one as your first credit card. Instead, you should look at the cost of interest on your first credit card. This is the percentage interest you will pay on the balance that you do not clear each month.
If this is your first credit card you may find that interest rates, known as APR or Annual Percentage Rate, will be higher than on traditional cards.
You will have to make a regular monthly repayment on your credit card. This amount is set by your credit card provider and is the minimum you will have to repay each month. However, it is a good idea to budget to pay off the entire balance each month in order to avoid interest on your outstanding credit card debt.
Despite the benefits of credit cards, there are risks to first-time card users, namely the temptation to purchase items that are beyond your monthly budgets or spending more than you can afford to repay.
This temptation is the most important thing to guard against when you use your new card.
It is not wise to use the card as a means to finance items that you cannot afford: for example a new phone, designer clothes or expensive holidays abroad. Even small purchases will add up over time and you may get a shock when you receive the total bill at the end of the month.
Required monthly payments are usually a small fraction of the total amount borrowed, and it is easy for inexperienced borrowers to generate more debt than they can reasonably repay without seeing the problem until it is far too late.
Store cards can seem like an attractive option but make sure you know about the drawbacks before signing up in-store to get the discounts and membership perks. Read our dedicated guide on the pros and cons of store cards.
The best rule of thumb for a first-time card user is to purchase only what you can afford to pay back in full each month. Track your total charges throughout the month until you are accustomed to using the card, to avoid accidentally creating big debts that could take years to repay.
If you're a first-time credit card holder and would like to know more, then read our seven tips to help you prepare.