How to Tell if You’re Ready for a Credit Card

You must be at least 21 years old, or at least 18 if you have your own verifiable income, to qualify for a credit card.

Without income, you could apply for an account with a co-signer—which only a handful of credit card companies allow—or become an authorized user on another person’s account. But in both cases, the other user’s credit could suffer if you make purchases you can’t repay. Make sure they understand the risks of co-signing or adding you as an authorized user before moving forward.

What Card Do I Get?

As a newcomer to credit, you probably won’t be able to qualify for the most valuable credit cards — the ones with rich rewards and perks, big sign-up bonuses or long 0% interest periods. Those cream-of-the-crop products are available only to applicants with good or excellent credit (scores of 690+) and longer credit histories who meet certain income requirements.

You’ll likely have to start smaller with your first credit card, with a product geared toward people with limited or no credit history. It’s not all bad news, though — many such cards offer decent rewards and don’t charge annual fees. Some options to consider include:

• A student credit card, or a credit card designed for college students.
• A secured credit card, or a card that requires a cash deposit.
• A credit card marketed to those with fair credit, generally defined as a credit score of 630 to 690.  
• A credit card you pre-qualify for, either through your bank or online similar tools.

Now you can make the big decision: Should you get a credit card? Here are the top benefits and drawbacks of credit cards:

Pros:

• You’ll build credit history
  • You must establish a strong credit track record in order to access other lending products you might need in the future, such as a mortgage or auto loan. You’ll get better terms once you have a strong credit record, too. One simple way to begin building a credit history is by opening a credit card, using it sparingly—say, to pay for a monthly subscription service or for gas—and paying the bill in full each month. You’ll then be able to show lenders that you can responsibly manage money and make payments on time.
• You’ll be shielded from fraud liability
  • With data breaches frequently in the headlines, it’s important to protect your identity and financial accounts, especially when shopping online. If your account information is stolen, credit cards come with less fraud liability and risk than debit cards. Most credit cards have policies that state you won’t be on the hook for a single dollar if fraudulent transactions are made.
• You don’t have to carry cash when traveling
• You could earn cash back or travel rewards

Cons: 

• You may be tempted to overspend
  • Getting a credit card shouldn’t encourage you to buy things you can’t afford. But without responsible spending habits, you might end up with a balance that’s beyond your budget. A good rule of thumb is to only spend what you know you’ll be able to pay off fully by the due date.
• You could feel more overwhelmed by bills
  • If you’re barely getting by while covering other expenses—including rent, car loans, student loans, and utilities—a credit card might seem like a lifeline. But if you make purchases and then can only afford to pay the minimum owed, you can quickly get in over your head.
• You may not be ready

Key Tips for Credit Card

A credit card can be a useful tool in helping you establish credit and build a positive credit history if you use it responsibly, which means:

• Keeping your credit utilization low. Many experts recommend keeping this important ratio at 30% or less.
• Paying your bills on time, every time. Your payment history is the most important factor in your credit score calculation.
• Not overspending. Consider using your credit card to buy only what you can pay for in cash. You’ll be able to pay your bill in full each month, which will help keep your credit utilization low, and you won’t get stuck paying excessive interest charges.
• Applying for credit sparingly. More isn’t necessarily better when it comes to credit. One of the factors used in credit scoring algorithms is the amount of new credit you’ve applied for recently. If you apply for too many new accounts, your credit score could take a hit. Every time a potential creditor looks at your credit reports with a “hard inquiry ,” it could lower your credit score by a few points.

Author’s Verdict