Everyone becomes financially independent at different points in their life. For some, it’s going to college and for others, it’s after graduation. Because there are so many factors that come into play, there’s no set timeline for establishing financial independence. However, a great first step to take towards becoming financially independent is getting your first credit card. As you get older and start applying for loans for college, a car or even a home, you’ll find that you need to have good credit. One way to establish good credit is by demonstrating financial responsibility with a credit card and paying off the balance in a timely manner.
So, let’s say you’ve decided you’re ready to take the plunge and get your first credit card. Where do you start? What does “interest rate” mean? Do you want one that offers rewards or cash back?
- Look for a card with a low APR. APR stands for annual percentage rate. It’s the amount of interest that a credit cardholder will be charged on all or a portion of the balance if the full amount isn’t paid by the due date. This is one thing that increases credit card debt. Be careful – many cards offer a low introductory APR to entice you to sign up, but then increase the rate down the road. As someone new to the credit card world, you might have to settle for a higher APR until you establish your credit history. Once you’ve done that, you can talk to your financial institution to see if you qualify for a lower rate. All of this APR talk sounds stressful so remember, if you pay your card’s balance off every month, you won’t even have to worry about it. And don’t forget – credit unions are known for offering lower interest rates than banks! The APR for Delta Community CU’s Young Adult Credit Card is lower than the APR for a similar card from some banks.
- Secured credit cards. If you find yourself unable to qualify for a credit card because you don’t have any or enough credit, you may be able to get a secured credit card. A secured card requires a cash deposit which is often equal to the credit line for that account. For example, if you put $1,000 in, you can typically charge up to $1,000 on that card. Secured cards are a good way to establish credit. Many credit unions, including Delta Community, offer secured cards and may even offer lower interest rates. You can find more information about secured credit cards here.
- Be smart about what you buy with your credit card. Great – you’ve qualified for your first credit card! This is not the time to go crazy and buy that new iPad you’ve been dreaming about for months. Many young people treat credit cards like an unlimited supply of money and end up racking up years’ worth of credit card debt. It’s best to start out small. Buy your groceries and your gas with the credit card or use it to pay off one or two of your bills every month. This way, you can pay off the balance every month and avoid accumulating lots of interest. The best advice is to treat the credit card like cash in your wallet. You only have a specific amount to spend.
- How do I keep up with my payments? The fact that you are reading this blog is a strong hint that you are technologically savvy. Online and mobile banking are great ways to monitor your credit card transactions and make payments. You can choose to receive your statement in the mail or online depending upon which one you will be more likely to check. If you are still worried that you will forget, set a tickler on your phone as a reminder of your due date. You can even setup an automatic payment if you want.
- Let’s get to the good stuff – what kind of rewards can I expect? Deciding what type of rewards you want with your credit card is a very personalized experience. Do you travel a lot? Then look for a credit card that rewards you with frequent flyer miles. Or maybe you just want to earn cash back! Delta Community’s Reward Points program offers a variety of redemption options for you to choose from, including cash back, merchandise, gift cards and travel with no blackout dates.
A lot of people treat credit cards like they’re a gateway to debt, but in reality, credit cards can be a very useful and handy thing to have in your life. It’s how you handle your finances and your credit card that will determine whether or not you spend the next 20 years of your life paying off a credit card from when you were in college. The key is to be smart about how and when you use your credit card.
Here are three great resources that can help you decide what card is best for you and your lifestyle.
If you’re still a little overwhelmed – and that’s okay! – stop by your Delta Community branch to discuss your options with a representative. After all, that’s what we’re here for!