Credit

Applying for and Managing a Credit Card

 

As young adults venture out into the “real world”, it is important to establish a credit history. Now, since you are young, that means you have little to no credit history. This is where the need for a credit card comes in. You may be unsure or feel confused about the process of obtaining and managing one, but credit cards are not as stressful as they seem to be.

How Do I Get a Credit Card?

To apply for a credit card, you must be at least 21 years old. Many people at this age have no credit and are often the ones who struggle to get approved for a credit card the most. This is because institutions need to look at your credit score to issue a credit card but to have a credit score, you’ll need to have an active credit card account on your credit report for six months.

Feeling overwhelmed? Don’t be.

This is where that part time job you’ve been working at while going to school finally pays off. Credit card issuers need to see that you have a sufficient income to pay off your credit card balance. Keep in mind, it must be money earned by you. That excludes your parent’s, spouse’s, or other members of your household’s income. The higher this amount is, the better your chances are of being approved for a credit card without a credit score.

Note: If you are unemployed or earn a small salary, you can include money you get from scholarships and grants

If you are a student, I highly recommend applying for a student credit card. Specifically, the Discover it for Students Card. I use it and it’s made it easy for me to build my credit since it has no annual fee and I can earn cashback rewards for getting good grades and from qualifying purchases. It also offers cashback match, which matches the amount you’ve earned in rewards at the end of the year (The Cashback MatchTM is a promotional offer and therefore may not be available in the future). You can use the cashback rewards to pay off your minimum balance, redeem it as a gift card, or have it electronically deposited to your bank account. Student credit cards are tailored to college students who don’t have a large income or credit history. To qualify for a student credit card, you must provide proof that you are enrolled in an accredited college or university.

I’ve Been Approved. Now What?

Congratulations, you’ve been approved for a credit card!

Here comes the managing part. Being a credit card holder comes with a lot of responsibility. There are a lot of things to keep an eye on, such as an annual fee (if applicable), late fees, annual percentage rate (APR), your credit line, and minimum balance. Let’s go through each of them.

Annual Fee: An annual fee is separate from the interest rate fee. It is charged by credit card companies each year for using a credit card. Remember, not all credit cards have this. When looking for a credit card, avoid ones with an annual fee to dodge this extra cost.

Late Fee: A late fee is applied when you fail to pay the minimum balance. To avoid this, make sure to pay the minimum balance by the due date specified. To further avoid this, make sure you charge amounts to your credit card that you are confident you can pay back.

Minimum Balance: The minimum balance is the amount owed monthly. If it is not paid in full, it will be carried over to the next billing period. This will incur late fees and interest rate fees. Once again, to avoid this make sure you charge amounts to your credit card that you are confident you can pay back.

APR: The APR, or annual percentage rate, is the interest rate charged each month when there is an outstanding balance present. Again, you can avoid this by charging amounts to your credit card that you are confident you can pay back. The APR depends on what the issuer is offering and can be variable.

Credit Line: This is also known as a credit limit. It is the maximum amount that can be charged to a credit card. This amount, and how much has been borrowed from this amount, affects your credit score. So, a credit line that doesn’t have much borrowed from it can result in a high credit score.

Credit Can be Dangerous

Misusing a credit card can create long term financial problems. Be sure to use credit cards wisely, as they can tempt people to overspend, result in bankruptcy, and loss of creditworthiness.

 

Getting approved for a credit card gives you financial freedom, but be sure to use your credit responsibly. Keep balances low and pay the full amount each month. Implementing these practices can qualify you for more credit cards and even loans in the future.