Need help with first Credit Card?
So, I’m looking to get my first credit card soon to begin building my credit. Being that I turned 18 half a year ago with only a single bill under my name, I still have 0 or next to nothing credit. Therefore, when I go to look for one, I’m on the lower or "limited section".
My banker at one bank told me to use CapitalOne first since that’s what they used and it should work out fine. I believe I fall into the category of "Limited History" or "Limited Credit". There’s several different cards that look like they all do the same like "Platinum" and "Young Adults". However, when I go to see if I pre-qualify and say that I just want low interest rates and have limited credit, they pair me with the "Classic Premium". Is this the right choice for me and am I on the right track?
Some other concerns were that my banker told me to always pay the minimum balance on time, but leave an "outstanding balance". Any help on just what outstanding is if anything other then having something left to pay? We agreed on me paying the minimum balance then half of whatever was left. She said by doing this, I’d build credit much faster and be good after 6-8 months at which point I’d drop CO, get a credit card from my current bank and another one elsewhere.
Some other small questions are about the APR percent (what it means; how it works) and when I get the annual fee. There’s also a problem I saw during the actual application of the credit card. It requires that I put a monthly rent payment and yearly income but I’ve only had my job for 7 months and don’t make rent payments yet, so what would I put there?
I’m just here for another opinion and confirmations. I’ll most likely speak to my banker on the phone during the process as well since she only set the foundation. Thanks for any help and I apologize for my poor knowledge thus far.
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3 comments
tudorjason on April 27, 2010 at 1:35 pm
Wow. You certainly want to know about credit. Good for you.
Yes, search for a card that is meant for first-timers who have limited history or credit. You can go to http://www.creditcards.com and look under the Search By Credit Quality section on the left panel for Limited or No Credit History. Apply for a card that doesn’t have an annual fee. You will have to pay a higher APR for a while to prove your responsibility.
Or you can apply for a secured credit card. You pay a certain amount to open an account and you borrow against yourself, but you still have the same rules as a regular credit card.
I do leave a small revolving balance on my cards to show the issuers that I need the credit they gave me so that they don’t drop my limits. However, with the high interest rate you’ll likely pay, this may not be best. A revolving or outstanding balance is when you leave some balance on a card on from month to month after you’ve made a payment, at least the minimum.
Don’t get too credit happy. You only need about two or three credit cards. And you should wait at least one year before applying for your second card. Building a credit history is a slow process.
Please don’t pay attention to those who say you don’t need credit at all. You’ll need to prove to a lender that you can pay borrowed money back in case you want to get a mortgage, a car loan, or even student loans.
APR is annual percentage rate. It is the amount of interest charged on a balance per year and then divided equally monthly.
If you don’t pay any rent at all, then write zero. The fact that you’ve only had a job for 7 months sort of skids everything though. The longer your employment history is, the likely you’ll be approved, so if you want a card now, a secured one is best. For yearly income, write down what you expect to make when you have completed one full year of employment.
You shouldn’t apologize for wanting to become knowledgeable and you seem to be far ahead of most of your peers.
Good luck.
Cris on April 27, 2010 at 1:35 pm
for info ; open the third & sixth link in: http://www.credit-debit-card.co.cc
Dan B on April 27, 2010 at 1:35 pm
Your banker’s advice about paying the minimum balance and keeping an outstanding balance is bad advice that will cost you money. His obligation is to the bank. His obligation is to make money for the bank through interest collected on outstanding balances.
APR. Take the quoted APR and divide it by 365, then multiply that by your outstanding balance. That will be the interest you are charged each and every day on your outstanding balance. 19% interest is 0.19. Divide that by 365 and you get a daily rate of 0.00052. Multiply that figure by your outstanding balance (let’s use $3,000) and you’ll be charged 1.56 each day. Doesn’t sound like much. But if you make a payment every 30 days, that amounts to about $45 just for the interest. Add to that an extra amount for principal. Most issuers are going to 5% of your outstanding balance for your minimum payment. So, on a $3,000 balance, you’ll have to pay $150 per month ($45 for interest, $95 for principal). As you pay off the balance, that $45 works it’s way closer to $0.00 and the $95 works it’s way to $150 until the debt is paid in full. Annual fees are an unnecessary additional expense you must bear just to possess the card. Avoid any card that has an annual fee. It’s anther way for the bank to make money from you.
You can multiply your monthly income by 12 to estimate your annual income - it won’t be lying. Put $0.00 for your rent payments. They may ask why you aren’t paying rent.
My take on credit cards:
No one NEEDS a credit card to build credit. CC issuers have been running this scam for years and years. A savings account is a better indication of your ability to manage your finances than a bunch of credit cards. With a credit card, you are BUYING a credit profile through high interest rates and annual fees. With a savings account, you are EARNING a credit profile. But they do not care about your ability to save money. They care about your willingness to spend money. They want their card holders to get into as much debt as possible so they can make as much money (interest and fees) as possible for the CEO and stockholders. They could not care less about their customer’s financial burdens or how the CC issuer got them into that situation. The important thing is that it takes individual responsibility to keep that from happening.
CC issuers know human nature. Humans are impatient, forgetful, egotistical status seeking animals, greedy, and not very smart at financial matters. Humans cannot wait to buy something that will make them feel good or look good, regardless of the cost. They will forget to make the payment, incurring a late payment fee and interest charges. They cannot remember how much credit they have left and will overspend, incurring an over limit fee. They will spend more than they can afford, incurring interest charges on their credit balances. The FDIC noted in 2008 that 93% of the $18 billion bank ATM overdraft fees were paid by 14% of their customers. NSF checks added $12 billion dollars to that figure.