It’s Time to Get Your First Credit Card — Here’s Why

first credit card

Getting a first credit card is a big financial step — one that feels scary to many young adults. In fact, nearly two-thirds of adults ages 18 to 29 don’t have a credit card.

I was one of those people reluctant to get my first credit card. My parents warned me how easy it was to get in over my head with credit card debt, so I avoided it in college. Even after graduating, I didn’t see the value of getting a credit card. Now I know that I missed out on plenty of perks.

From building credit to earning rewards, there are several important benefits that come with a credit card. If you have yet to take the plunge and get your first credit card, it’s time — here’s why.

How your first credit card establishes credit

“Having a credit card is important because it helps someone establish credit history,” says John Ganotis, founder of Credit Card Insider. Many millennials prefer debit cards, but as Ganotis points out, “Using a debit card does not help build credit.”

Take me, for instance. After graduating, I figured my student loans would be enough to help me establish good credit. But that didn’t happen — at least, not fast enough.

“Credit cards often get a bad rap, but when young people avoid building credit they may have trouble renting an apartment, getting a cell phone contract, financing a car, or eventually buying a house,” Ganotis says.

Those were exactly the issues I encountered. With almost nothing on my credit history, my credit score was in the 400s. It was so abysmal that I couldn’t be listed on the lease of the first apartment my husband and I shared.

Better credit mix

I got my first credit card shortly after that experience, and after two years of building credit I had a barely acceptable credit score in the 600s. If I had relied on my student loans alone to build credit, it’s unlikely my credit score would have improved as quickly.

That’s because a mix of different credit types is a key ingredient of a high credit score.

“In the credit scoring model, type of credit (or credit mix) determines up to 10 percent of the total score,” Ganotis points out. “So by not using revolving credit [like a] credit card, you are just limiting your credit score from the very beginning.”

Lenders like to see different kinds of accounts on your credit report that shows you’re a responsible borrower, no matter the type of credit.

Longer credit history

“One factor in credit scoring models is the average age of accounts, so to maximize that factor it’s better to get a card sooner rather than later,” Ganotis explains.

Two years after getting my first credit card, I had OK credit but a short credit history. It caused problems when looking for a new apartment. A couple of our rental applications were rejected — the main reason for the rejections was my thin credit file.

In contrast, Rachel Cohen, a personal finance blogger at Not Winging It, got her first credit card at 20. She started building credit well before she needed it. “I am super glad that I got a credit card when I was 20 because my credit history is now six years old and my score keeps climbing,” Cohen says.

Higher credit limits

Your credit utilization, or how much you’ve borrowed compared to your credit limit, is also key to your credit score. If you’re building credit, you should keep your credit utilization under 30 percent.

However, most people have a pretty low credit limit for their first credit card. For example, if your credit limit is $500, you could only charge $150 to your card before your credit utilization exceeded 30 percent.

“The longer you show that you make payments on time, the more credit a creditor may be willing to extend,” says Ryan Frailich, a financial planner with Deliberate Finances. As you use a credit card responsibly, many credit card issuers will automatically increase your credit limit. A bigger credit limit makes it a breeze to maintain a good credit-building utilization ratio.

Positive credit card payment history

I avoided getting a credit card because I was worried about the dangers of credit card debt. Like many young people, I wasn’t very clear on how credit cards worked, and I didn’t trust myself to resist the temptation to overspend.

However, “As long as the card is used responsibility, getting a credit card does not mean getting into credit card debt or paying any interest or fees,” Ganotis says.

The first rule of responsible credit card use is to always pay at least the minimum, on time, every month. Your payment history is the biggest factor that determines your credit, so make sure it’s perfect.

Additionally, limit credit card purchases and aim to pay off your credit card balance in full each month. This will help you avoid credit card interest and debt.

How to choose your first credit card

Beyond building credit, however, there are other perks of getting your first credit card. These include credit card rewards, price protection, and stronger fraud protections.

When choosing a starter credit card, you want to make sure the benefits aren’t outweighed by the costs. Try to choose a credit card with a low APR or even a 0% introductory rate. This will help you keep costs low if you must carry a balance while building strong credit card habits.

You’ll also want to watch out for fees. The best first credit cards will have no annual fee. Look for low fees for other transactions like cash advances, foreign transactions, or balance transfers.

Lastly, consider other benefits. Credit card rewards can offer cash back on purchases.

“Combining initial bonus and cash back or rewards for spending, you potentially can earn (or save) hundreds of dollars every year,” says Alex Gerard, a personal finance expert and founder of credit card comparison site Cards Mix.

Many credit card issuers are starting to offer free monthly FICO score updates and access to other credit-building tools. Some cards offer features like forgiveness for your first late payment, perfect for a credit card first-timer.

Your first credit card is an important step, so choose a credit card wisely and spend responsibly. If you’re careful about how you manage your credit cards and other debts, you’ll start building credit and reap other benefits along the way.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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