Using Your First Credit Card To Improve Your Credit

CreditSoup Staff

December 19, 2018  •  3 Minute Read

Financial Tips

How New Credit Card Owners Can Build Good Credit

If you’re almost ready to apply for your first credit card, there is a handful of information you need to know. Building good credit in the first place is so much easier than trying to repair it after the fact, and you can start today. By understanding how credit works, researching your options and choosing one that suits your financial goals, you can be prepared to establish a credit history you’ll be proud to have.

Learn Common Credit Terms

As you look at credit cards and get your first credit report, you may see a lot of jargon that may or may not be meaningful to you. Here are a few that you should understand:

• Credit history: The length of time you have been building credit, and what it looks like
• Credit report: The current state of your credit, at least the last two years
• Credit score: A rating from 300-850 from the three credit reporting agencies, designed to show lenders how well you handle debt
• FICO: Fair Isaac Corporation, a third-party organization creating credit scores that most lenders use
• VantageScore: A credit scoring model devised and run by the credit reporting agencies
• Utilization: The debt you have in relation to your available credit

These terms can get easy to confuse at times. For example, you can get a free copy of your credit report from each agency once a year, but that usually doesn’t include credit scores.

Your credit history is the complete picture of your present and past debts. Since your credit report typically shows only the past two years (with a few exceptions), your full credit history may not be reflected on it.

Find the Best Cards to Start

At first, you might be limited to cards aimed at people with no credit or low credit scores. Lenders tend to be wary of giving accounts to people with a blank credit history because they don’t know how the borrower will pay it back. There are many options for students and other people with a limited credit report. These include:

• Store credit cards, which work at the store but not for other purchases
• Student credit cards, targeted at young adults
• Secured credit cards, which rely on placing a security deposit with the issuer as a kind of guarantee against default

These cards often have a low credit limit and higher-than-average interest rates. To qualify for one, you may need to prove that you have a stable income, a regular place to live, and enough money to pay back your debts.

Learn the Different Types of Credit Cards

Until you establish that you are able to handle your debt properly, you may get only a few credit card offers. One of the first things new credit card owners have to distinguish is the difference between secured and unsecured credit cards.

Secured credit cards require you to make a deposit to the lender that will better ensure you’ll make payments on time. They’re not the same as a prepaid card, which you have to use like a debit card. You have to pay interest on debt you carry with a secured card.

For convenience, most people prefer unsecured credit cards because they don’t need a deposit. In the beginning, you might not be able to get one. Fortunately, with some careful planning and controls on your spending, you may soon be ready to apply for unsecured choices with rewards, no annual fees and other perks.

There are many ways you can build good credit, and it’s best if you start sooner rather than later. If you pay attention to how lenders look at your credit, choose a credit card that will help you add positively to your report, and spend wisely, you’ll be on your way.