- 1 Newcomers Shouldn’t use the Best Credit Cards
- 2 Obtaining a credit card is simpler with a security deposit.
- 3 Your first credit card has the power to improve or damage your credit.
- 4 You can review the costs and rates before submitting.
- 5 Avoidable Credit Card Fees
- 6 Interest is also entirely avoidable.
- 7 You have the option to pay more than the minimum — and you should!
- 8 Late payments incur substantial fees.
- 9 Being too Close to Your Credit Limit Can Harm it.
- 10 Combating credit card fraud isn’t as challenging as it sounds.
- 11 When someone fraudulently uses your credit card information:
- 12 The credit card issuer will explain why if your application is denied.
- 13 FAQs
- 13.1 What distinguishes a debit card from a credit card?
- 13.2 Why do secured credit cards exist?
- 13.3 What different kinds of credit cards are there?
- 13.4 How long does it take to submit an application for and receive a credit card?
- 13.5 How do I find out if I qualify for a credit card?
- 13.6 Why is a credit limit important? How can I increase the credit limit on my card?
- 13.7 Does every credit card have an annual fee and an application fee? What additional fees are there for using a credit card?
- 13.8 Do credit cards charge interest if a balance is not paid?
You can start the process of establishing good credit by learning the fundamentals, which will also save you time, money, and frustration.
Newcomers Shouldn’t use the Best Credit Cards
The best credit cards — the ones with generous rewards and perks, significant sign-up bonuses, or lengthy 0% interest periods — are probably out of your reach as a credit novice. Only applicants who meet specific income requirements and have good or excellent credit (scores of 690+) and longer credit histories are eligible for those top-tier products.
With your first credit card, you’ll probably need to start out small with a product designed for people with little to no credit history. However, there is some good news: a lot of these cards don’t have annual fees and offer respectable rewards. Consider the following options as well:
- A credit card for college students, also known as a student credit card.
- A credit card that needs a cash deposit, such as a secured card.
- A credit card targeted at people with fair credit, which is typically considered to be a credit score between 630 and 690.
- A credit card that you have already been pre-approved for using your bank, NerdWallet’s pre-qualification page, or tools of a similar nature.
Obtaining a credit card is simpler with a security deposit.
- Consider a secured credit card if you’re having trouble getting your first credit card approved, perhaps because you have no credit history at all.
- People with bad credit or no credit should use secured credit cards. You must make a cash deposit in order to open your account. The amount of your deposit usually determines your credit limit. Depending on the card, the required minimum deposit can be anywhere between $200 and $500. You can typically deposit more on secured cards to receive a larger credit line.
- This deposit might be forfeited in the event of late payments. You could build good credit quickly, though, if you consistently pay your bills on time and keep your spending well under the card’s limit.
- The account may then be upgraded to a standard unsecured card by your issuer, or you may apply for an unsecured card and close the secured card while maintaining good credit. Your deposit would be returned in either scenario.
Your first credit card has the power to improve or damage your credit.
- Increasing your credit is one of the main benefits of getting your first credit card. However, if you’re not careful, it might have the opposite result. Everything is dependent on what you do.
- Your issuer will send information about your credit card usage to credit bureaus each month; these organizations create the credit reports that serve as the foundation for credit scores.
- Whether your payments have been made on time and how much of your available credit you have used are among the reported details. Late fees are undesirable. The card should not be maxed out.
- Pay your credit card balance in full and on time each month, and avoid going over your credit limit to the greatest extent possible. Maintain your balance below 30% of your available credit at all times (a good rule of thumb). To keep track of where you stand, track your credit scores. NerdWallet offers a free credit score you can use to track your development.
You can review the costs and rates before submitting.
Federal law requires credit card issuers to make certain terms, such as interest rates and fees, publicly available before you apply.
These are shown in a table known as a Schumer box, which is typically located on a credit card application page online (look for a link labeled “Rates and fees,” “Pricing and terms,” or something similar) or on a slip that is enclosed in paper applications.
These cards are included in the Schumer box:
- What it charges cardholders on a yearly basis is called the annual fee.
- APR, also known as annual percentage rates. You will be charged this interest rate on any balances that you carry from month to month. Some cards have different interest rates for purchases, balance transfers (moving debt from other accounts to the card), and cash advances (withdrawing cash with the card, typically at an ATM). There are a few cards that impose penalty APRs after a late payment, but they are few in number.
- Foreign transaction fees, or charges made when making purchases outside of the United States, are typically 3% of the total cost.
- When you pay even a day late or if you don’t pay the minimum amount due, late fees are assessed.
Naturally, there are some details you won’t learn until after you apply. For instance, until your application is approved, you typically won’t know what your credit card limit is.
Avoidable Credit Card Fees
Even if you have no credit history, you can avoid paying any credit card fees:
- There are many excellent introductory cards without annual fees, including many secured cards.
- If you pay on time, late fees are not a problem.
- Foreign transaction fees are irrelevant if you don’t intend to use the card to make purchases outside of the United States, and many issuers don’t even apply them.
- If you never make these kinds of transactions, the fees for balance transfers and cash advances are meaningless.
- Over-limit fees, which are assessed when you go over your credit limit, are almost nonexistent. Issuers are not permitted to charge them unless you choose over-limit protection, which covers charges that exceed your limit. Even then, you can avoid them by adhering to your limit.
Interest is also entirely avoidable.
Speaking of avoidable costs, no matter how high your APR, if you pay off your credit card balance in full each month, you will not be subject to interest charges.
That is a result of the grace period on your card. Simply put, once your bill has been paid in full, no new purchases will start to accrue interest until the next due date. If you use your card exclusively for purchases the following month, you can avoid interest charges by paying the entire balance in full.
Continue doing it, and you’ll never be charged interest.
However, if you carry a portion of your balance over to the following month and don’t pay your bill in full, you’ll be charged interest on both the carried balance and any new purchases that you make starting right away.
You have the option to pay more than the minimum — and you should!
Your minimum payment due, or the least amount you must pay to keep your account in good standing, is prominently displayed on credit card statements. That might be perplexing. You could get away with paying this much less, but paying the full amount is also an option, it might sound like a friendly suggestion.
Paying less now usually results in paying much more later. The minimum usually only pays a small portion of the underlying balance, as well as any applicable past-due interest and fees. The actual amount of your credit card debt doesn’t get much smaller when you only make the minimum payment. You’re mostly just floating along. You risk building up an unmanageable balance if you keep making purchases with the card.
Late payments incur substantial fees.
It can be costly to miss your due date. You might experience: depending on how far behind your payment is.
- Late charges. Each year, these fees’ permitted maximums are changed. However, first-time offenders typically pay well over $20, and repeat offenders may pay as much as $40.
- APR penalties. Although some credit cards still do, the majority no longer charge penalty APRs. Late payments result in a penalty APR, which can immediately raise your interest rate for new transactions to 30% or more. Furthermore, the penalty APR may be applied to your outstanding balance if the payment is overdue by more than 60 days.
- Loss to your credit score. You won’t be negatively affected by paying a day late. However, your payment will be marked as being overdue on your credit reports if it is 30 days or more overdue. This will lower your credit scores.
Take into account setting up automatic bank account payments. Or, to keep yourself from overdrawing your account, write down your due dates on a calendar.
Being too Close to Your Credit Limit Can Harm it.
Your credit utilization ratio is the amount of available credit that you use as a percentage. Your credit scores greatly depend on this. Your credit scores can suffer if your utilization ratio rises too high, as when you carry a $1,500 balance on a card with a $2,000 limit, for instance.
The better, the lower your credit utilization ratio should be. Try to use no more than 30% of your limit at any given time to maintain a healthy score. By doing this, you can make sure that your balance won’t be too close to your credit limit whenever the issuer reports the status of your account to the credit bureaus.
Combating credit card fraud isn’t as challenging as it sounds.
If you’ve been hesitant to open your first credit card due to a concern about fraud, know that credit cards actually provide you with more protection against fraud than debit cards do.
Your bank account could be instantly emptied if thieves get hold of the details of your debit card. You can notify your bank about the fraud and get your money back, but it will take some time to sort everything out, and during that time you might find yourself short on cash.
When someone fraudulently uses your credit card information:
- The money at risk is not yours; it belongs to the credit card company. Any erroneous charges will be subject to a reasonable period of time, usually immediately, for you to contest them and have them eliminated from your outstanding balance.
- There is no cost to you. Because of federal law and the zero-liability practices of credit card networks like Visa and Mastercard, your liability for unauthorized credit card purchases is typically zero dollars.
- A new card is fairly simple to obtain. They will cancel your card and send you a new one with a new number after you call your issuer to report a fraud on your account. Your old card number will no longer be used for transactions.
The credit card issuer will explain why if your application is denied.
Even though it’s disappointing to be denied a credit card, there are lessons to be learned. Federal law mandates that card issuers send you an adverse action notice, which serves as an explanation of their choice. For instance, an issuer might claim that you were turned down because of your insufficient income or lack of credit history. You may use this criticism to guide your decision on how to increase your chances of being accepted in the future.
What distinguishes a debit card from a credit card?
You can withdraw money directly from your bank account using a debit card. On the other hand, a credit card works more like a temporary loan from the card issuer that lets you make purchases and cash withdrawals. All of your credit card spendings is rolled up into one bill at the end of the billing cycle rather than being repaid for this short-term loan on a per-user basis.
Why do secured credit cards exist?
Regular credit cards and secured credit cards both have the same features. The only distinction between a regular credit card and a secured credit card is that the latter is issued in exchange for security, like fixed deposits, to lower the risk for card issuers. For people with little or no credit history, secured credit cards can be helpful. Therefore, it is one of the simplest ways to raise your credit score while taking advantage of a credit card. The risk for credit card companies is reduced by the issuance of secured credit cards in exchange for a fixed deposit. Your deposit may be taken by the credit card company if you don’t make your payment on time.
What different kinds of credit cards are there?
There are essentially two types of credit cards:
Credit cards with basic features and no annual fees are known as standard cards.
Credit cards with specialized features – Credit cards are created specifically to meet the needs of the cardholder. These cards grant a variety of benefits for travel, dining, and other activities.
Credit cards, however, can also be categorized as follows:
Cards that are suitable for everyday use include general credit cards, which have basic features and relatively low annual fees.
Credit cards with reward points – With every purchase made, cardholders earn reward points. The amount of reward points that a cardholder earns depends on how much is spent. Gift cards, coupons, and other items can be obtained by exchanging these reward points.
When a cardholder uses a cash-back credit card, a certain proportion of their purchases are credited back to their account. Periodically, the total cash back earned is deducted from the card account.
How long does it take to submit an application for and receive a credit card?
You can apply for a credit card online at the online website in under two minutes. Following your completion and submission of the online application, the card issuer will contact you and ask you to send the necessary supporting documents.
After the bank receives your properly completed application form, your application will be processed within two weeks. After your application has been approved and the bank has completed all necessary checks, you should receive your new credit card within 7 working days if all of your paperwork is in order. By SMS or email, the bank will promptly update you on the status of your credit card application.
How do I find out if I qualify for a credit card?
The eligibility requirements listed on the bank’s website will let you know if you meet the requirements for a credit card. For more information about your eligibility, get in touch with the customer service division of the credit card companies.
Why is a credit limit important? How can I increase the credit limit on my card?
The maximum credit line granted to you on your credit card is known as a credit limit. The profile of the applicant, ability to repay, CIBIL credit report, and other variables all affect the credit limit. But if you want to raise your credit limit, you can ask your provider to do so.
When you make the request, your provider may require more supporting documentation or scrutinize it based on things like your credit rating and financial situation. Your credit limit will be raised in the event that you are found to be eligible. Additionally, your provider might be willing to raise your credit limit annually if you have paid off your credit card balance on time.
Does every credit card have an annual fee and an application fee? What additional fees are there for using a credit card?
No, not every credit card has an annual or initiation fee. For instance, the Amazon Pay ICICI credit card has no initiation or annual fees. But in addition to the joining fee and annual fee, credit cards also have a number of other fees, including overdraft fees, late payment fees, foreign exchange fees, etc.
Do credit cards charge interest if a balance is not paid?
Yes, cardholders who fail to pay the required amount on time will incur penalties from credit card companies. On their outstanding balance, cardholders typically pay interest rates of 3–4%