10 Things To Know Before Getting Your First Credit Card

January 05, 2021

Getting a first credit card is a huge milestone and a big adjustment. Here are some tips to know before getting a first credit card

  1. Credit cards are not for beginners. Since your client is new, they may not qualify for most of the valuable credit cards and to get a fancy card, they need to have a good credit score. For the first card, start smaller and look at cards such as: student credit card for college students, secured credit cards which are for cash deposits, credit cards marketed to those with fair credit (credit score of 630-690) and credit cards that are prequalified for through a bank or online.
  2. Security deposit makes getting a credit card easier. If your client is having trouble getting a credit card, they can get a secured card. A secured card is designed for people with damaged credit or no credit. This type of card is an open account that takes cash deposits, so the credit limit is the deposit amount (minimum $200-$500). Always make payments on time and spend below the limit and it will build credit in months which would then qualify your client to be upgraded to a regular unsecured card and the deposit amount will be refunded.
  3. The first credit card can build credit/ruin it. Your client gets their first card in order to boost their credit. Every month your client's card activity gets reported to credit bureaus and these reports combined are what creates their credit score. Pending if payments are made on time and how much available credit is used depicts the credit score. If late payments are made and the credit card is maxed out, that is damaging credit.
  4. See rates and fees before applying. The interest rates and fees on a credit card are public and are known as the Schumer Box. Within the Schumer Box, there is the annual fee which is the fee charged on a yearly basis. The APR is an interest rate is paid if the balance is carried month-to-month. A foreign transaction fee is a fee charged when a purchase is made outside the U.S. (usually 3%). Late fees are when a bill is paid late even by a day or if at least the minimum is not paid.
  5. Credit card fees are available. Many secured cards do not charge annual fees. Late fees are not an issue if they are paid on time; foreign transactions are not an issue if outside Canada purchases are not being made. With regards to over-the-limit-fees, unless your client has opted into the over-limit protection plan, a charge cannot be made.
  6. Interest is completely avoidable. If the credit card bill is paid in full every month (grace period), no interest is added. If the credit card bill is not paid in full, interest is added to the carried balance and will count towards new purchases immediately.
  7. Can and should pay more than the minimum. The minimum/smallest amount on your clients’ credit card bill. It only means your client will have to pay more later. This minimum amount typically covers the past month's interest and fees (if any).
  8. Paying late comes at a high cost. Pending how late your client pays their bill, a late fee which adjusts annually, or a penalty APR which can increase the interest to 30% or more right away (more than 60 days, APR is applied to the outstanding balance) can be applied. Paying late creates damage to credit scores which occurs if the credit card bill is paid more than 30 days later. Setting up automatic payments from an individual’s bank account would help avoid this.
  9. Getting close to your limit. If your client gets close to their credit limit, it could sink their credit score. A credit utilization ratio is the percentage of the available credit. To lower the credit utilization ratio is better (try to use less than 30% of the limit at all times).
  10. Credit fraud dealings are not as difficult to overcome. There is a lot of protection to your client's account. The account can be emptied in an instant. It is the credit card company’s money that is at stake and your client does not have to pay. Obtaining a replacement card is easy.

**If your client is rejected for a card, the issuer will explain why.