How to Pick and Use Your First Credit Card

Applying for your first credit card can involve a considerable learning curve. With hundreds of card options, lots of jargon and the complexity of the US credit system, there's a lot to learn at once. 

It doesn't help that the process feels counterintuitive: How are you supposed to build credit to get a credit card if nobody will issue you a card without a credit history? 

Still, there are many reasons to want a credit card, chief among them is the convenience they offer for making purchases and the ability to improve your credit score by using them responsibly. Your credit score, a three-digit number that represents your creditworthiness, can affect much of your financial life, including renting an apartment, financing a car and taking out a loan. 

"It's important to choose the right kind of card for your needs," credit card expert Jason Steele said. "Student cards and other simple, unsecured cards are ideal for those who are new to credit. On the other hand, secured cards and subprime cards are best for those who have had serious credit problems."

We'll review everything you need to know before applying for a credit card: the basics of how credit cards work, how to pick the right card for you, how to apply and how to use your card to build credit.

Pros and cons of first credit cards

✅Pros

• Typically easier to qualify for than traditional credit cards  
• Helps build your credit history if used responsibly  

❌Cons:  

• Can lead to credit card debt if you overspend  
• Can hurt your credit if you don't make on-time payments  
• Typically fewer rewards and benefits than a traditional credit card  

How credit cards work

First, credit cards aren't free money. They're a financial tool that, when used responsibly, lets you space out payments for purchases, build credit history and, in some cases, earn rewards like cash-back or airline miles.

But credit cards can be extremely easy to misuse if you charge more than you can afford to pay back by the end of your billing statement. And if you miss payments, you risk wrecking your credit score and racking up interest charges. The best way to avoid these pitfalls is to understand the basics of credit cards.

Credit card issuers and processors

To get a credit card, you must submit an application to a credit card issuer, typically a bank or credit union. If they approve your application, they'll offer you a line of credit -- essentially lending you a certain amount of money that you agree to repay. Payment processing networks, like Mastercard or Visa, act as liaisons and help facilitate payments and benefits.

Credit limits

Every card has a credit limit, which is the highest amount of money you can borrow in total. The credit card issuer typically uses your credit score and your income to determine your credit limit. So if you're just starting out, your first credit card will probably have a low credit limit. Once you show responsible card use (paying balances on time and/or in full), you can request a credit limit increase.

Paying your credit card bill

At the end of the billing cycle -- which usually lasts about a month -- the credit card company will send you a billing statement that lists all the purchases you made with the card. The statement will also include a due date for the minimum payment -- that's the least amount you can pay for the billing cycle.

While paying the minimum payment will keep your account in good standing, the remaining unpaid balance will carry over to the next month, and you'll likely start accruing interest charges on any unpaid balance. 

Every card has its own annual percentage rate, which is the interest and fees it charges on unpaid balances. If you miss the credit card payment due date, you may incur late fees, adding even more to your debt.

You can avoid paying interest and fees by paying your statement balance in full and on time each month. Fees and interest charges can add up quickly and prevent you from paying off your debt as quickly.

Read more: 6 Important Dates to Know for Your Credit Cards

How to pick the right credit card

With hundreds of credit cards available, picking the right credit card will depend on your current financial status, your financial goals and your lifestyle. 

If you're just starting out, you can typically build credit with a student or secured credit card. After using the card responsibly -- making on-time payments and staying within your credit limit -- you can typically qualify for a standard, unsecured credit card that offers rewards. Here's what you need to know about each kind of card.

Student credit card

If you're a college student, the best credit cards for students are typically easier to qualify than most cards and can help to build credit with responsible use. These cards usually have a smaller credit limit and may offer fewer rewards and benefits, with some exceptions.

Secured credit card

A secured card is another option for those just starting to build credit or trying to rebuild a credit score. Secured credit cards require a refundable security deposit that acts as your credit limit. If you use the card responsibly -- making on-time payments in full every month -- the card issuer may offer to upgrade you to an unsecured credit card with better rewards and benefits.

Rewards credit card

A rewards credit card lets you earn a reward for your purchases with the card. Rewards can include cash-back, travel points and airline miles. Some cards let you earn welcome bonuses for spending a minimum amount within a specified period. 

In exchange for more lucrative rewards, some credit cards charge annual fees -- a yearly expense you pay to own the card. If you're considering a rewards credit card, look for one that matches your regular spending habits and if it charges an annual fee, can be covered by the rewards. 

Don't overspend to earn rewards -- if you carry a balance, the interest charged will likely wipe out any benefits you earn from the rewards.

How to choose a starter credit card

There are plenty of starter credit card options to choose from. Here are a few questions to ask yourself to help narrow down the right one:

• Is a security deposit required? 
• Is there an annual fee? 
• What's the penalty APR or late fees?
• Does it report to all three credit bureaus?
• Are there ongoing rewards, or is there a chance to upgrade to a rewards credit card later?

Take time to research the best starter credit cards that complement your spending

How to apply for your first credit card

Once you determine which card is best for you, you can apply for a credit card at the credit card issuer's site. 

While every credit card company has its own application, you will probably be asked to provide similar personal and financial information on each application -- including your name, age, employer, Social Security number, annual income and housing payment. With this information, the credit card issuer will run a hard credit check to decide if you fit the criteria for card approval.

After you apply, you will either be approved or denied, although the card issuer may have follow-up questions before making a decision. If you're denied, there are steps you can take to increase your chances of approval.

Some credit card companies will solicit you directly or allow you to see if you are preapproved for a card. Since card companies run a hard pull on your credit when you apply, which can temporarily cause your credit score to dip, preapproval lets you see if you're likely to be approved before you undergo a credit check. Preapproval doesn't guarantee you'll be approved -- it just means the credit card company thinks you're a good applicant for a particular card.

How to build credit with your card

Your credit score is a three-digit number lenders use to determine how likely you are to repay what you borrow. Your score is determined by a few factors, including your payment history, credit utilization, length of credit history, how much new credit you've taken on and your credit mix.

Here are some common blunders to avoid to keep your credit score healthy: 

• Not paying your minimum payment on time. In addition to being hit with late fees and interest charges, late payments reported to credit bureaus indicate to future lenders that you're an unreliable borrower. Over time, consistently paying on time will build a strong credit history that will boost your score, making you eligible for better credit cards and interest rates.
• Using too much of your credit limit. Experts recommend you use lessthan 30% of your total available credit -- known as your credit utilization ratio. So if your credit limit is $1,000, you should keep your balance below $300. But it's always better to aim for using less if you can.
• Closing credit card accounts. While it may seem reasonable to close an account for a card you don't use, it can actually lower your total available credit, increasing your credit utilization ratio and potentially shortening your credit history. If you can do so responsibly, it may be better to keep the card open and use it occasionally. But there are ways to cancel a credit card without destroying your credit.

Alternatives to help build your credit 

Credit cards are one of the quickest ways to establish a credit score (or a credit boost) with responsible credit use. But there are alternatives to consider. Here are a few ways you can build credit without a credit card:

• Become an authorized user. If you don't want to get a starter credit card, consider being an authorized user on someone else's credit card account -- such as a parent. As an authorized user, the primary account holder is responsible for making on-time payments on the account. As long as the account is in good standing, you can positively impact your credit score as an authorized user. 
• Pay back an existing loan. If you have an existing loan, such as a student loan or car loan, you can positively impact your credit score by making on-time payments.
• Apply for a credit builder loan. Credit builder loans offer a way to build credit without a credit card, but they don't work like your everyday loan. You work to pay off the loan in full, in monthly installments, before your lender extends access to the funds. Each monthly payment counts toward the total loan amount but is also reported to the credit bureaus. You don't need a credit score or a co-signer to qualify for a credit builder loan, but you'll need proof of income. We also recommend shopping around before applying for a credit builder loan -- they typically charge interest, so it's important to secure the lowest interest rate.

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