The Lowdown on Applying for a Credit Card
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When should I apply?
Many people open their first credit card before they hit important milestones—like renting their first apartment or getting a car loan. This ensures they’ll have a good credit score when they really need it. While it’s smart to start building credit while you’re young, it’s more important to apply for a credit card when it makes financial sense to your lifestyle. If you’re living paycheck-to-paycheck, it’s a good idea to have a credit card for emergencies. If your job requires you to travel a lot, it makes sense to apply for a card that offers travel perks. The time to open your first (or second, or third…) credit card will all depend on your own personal situation.
What should I look for?
There’s a laundry list of things that you should be aware of before you sign anything: credit limits, APR, fixed or variable interest rates, any annual fees, minimum monthly payment, late charges, international usage fees, etc. Many lenders will sweeten the pot by advertising perks, like no interest for the first year, and hide any negative aspects of the card in the fine print. It’s extremely important to read your contract in entirety before making a commitment. Credit agreements are legally binding, so make sure you’re informed.
Which card is best for me?
The biggest payout will come with those who can afford to spend (and pay off!) a large chunk of money each month. But oftentimes, these high-reward cards will come with some baggage: annual fees and a narrow qualification window. So, if excessive spending isn’t in your budget, look for cards that better suit your lifestyle.
If you travel a lot, a credit card that offers airline miles or points toward hotels is a great option. For those of you who tend to shop at the same stores, many businesses offer their own credit cards with loyalty points and cash-back bonuses. If you’re looking to build your poor or non-existent credit, consider a card with a low ceiling (and preferably a low interest rate). This will cap your spending while also helping you to establish (or re-establish) credit. The best credit card for you will depend on a variety of factors, so be sure to do your research.
How will my credit score impact my eligibility?
In general, people with good credit qualify for better cards (think high rewards and low interest). Your credit score will also determine your credit limits, so those with better credit are often eligible to borrow more than someone with a lower score.
How will credit cards impact my credit score?
The number of credit cards that you have will affect your credit score, for better or for worse. The more lines of credit that you have free, the higher your credit score will be. A general rule of thumb is that you should aim to use 10% of your credit limit (or to pay off all but 10% or so each month). This shows lenders that you know how to use credit responsibly. Before you go opening a bunch of different credit cards, you should also know that unused or cancelled credit cards can bring your score down. Additionally, your credit score will drop (sometimes dramatically) if you’re using a high percentage of your credit limit or if you miss monthly payments. So, venture wisely!
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