When it comes to paying, you likely swipe, chip or tap a lot more often than you use cash or write checks — and you’re not alone. Right now, plastic is king, but applying for your first credit card can be overwhelming.
What to Look for in Your First Credit Card
If you’re applying for your first credit card, you need to read the fine print. But how do you wade through all the confusing jargon and choose a card that’s right for you? Here are the most important terms to know when signing up for your first credit card.
Annual Percentage Rate (APR)
Think of APR as the interest rate on a loan. All account balances not paid off during the payment period will be subject to APR. The higher the unpaid balances, the higher the APR fees, and overusing your credit card without paying attention to climbing rates can hurt your credit. The annual percentage rate varies between cards (and can change over time if the Federal Reserve raises prime rates or special low-rate offers expire). If you think you might carry a balance on your card or won’t be able to pay off the amount due within the grace period outlined in the terms and conditions, then the annual percentage rate should be an important factor in choosing your first credit card.
Some cards have no annual fees, but cards with rewards such as cash back or airline miles often charge cardholders. The fee will be billed to your card once per year, and interest will accrue if the balance is not paid in full. Before signing up for a card with an annual fee, determine whether the rewards outweigh the costs.
Extra Fees and Penalties
In addition to APR and annual fees, some card issuers charge fees for foreign transactions and cash advances, or levy penalties for late payments or exceeding your credit limit. When looking for your first credit card, read the terms and conditions to understand the fees associated with the cards you’re considering.
To entice new cardholders to sign up, credit card companies often offer low- or zero-interest rates or zero-interest balance transfers. As the names imply, these rates are “introductory” and will go up over time. Read the fine print to understand how long the introductory rate lasts and what the interest rate will be once it expires.
The credit limit refers to the amount you can borrow on the card. The credit card issuer will use your credit history, including the amount of credit currently available to you on other cards, as well as total debt and payment history, to determine how much credit to extend you. A higher credit limit is not always good, especially on a first credit card. If you are a big spender and need to keep your expenses in check, note what you can afford. One of the scariest threats to your finances can come from too much debt.
Rewards programs differ. You might get one point for every dollar spent with “multipliers,” such as double points when you charge groceries or triple points for gas. When looking for your first credit card, think about where you plan to use your card most, and then choose the rewards that make the most sense for your spending habits — but be sure to consider the other terms and conditions, too.
Reading the fine print to understand how the various terms and conditions will affect your finances is an essential part of being a smart consumer and choosing the right credit card. Looking for more budgeting tips? Talk to your Farm Bureau agent, who can offer proven tricks to help you develop and maintain a budget.