What to consider when getting a credit card

College student holding credit card and shopping on internet

Use these three questions to help figure out if a credit card is right for you.

Do you find yourself wondering if you need a credit card? Having a credit card can be convenient and financially empowering, but it also requires a lot of smart money management skills. Credit cards can provide financial health benefits and help you build credit, but only when you manage your use responsibly.

If you use a credit card responsibly, it can help you establish a positive credit history from an early age. Having good credit may help you secure financing for large purchases such as a car, get lower interest rates on loans, and get approved for renting your own apartment.

Ask yourself these questions to determine if a credit card is right for you

1. Why do you want a credit card?

Wanting a credit card so you can start building credit is a valid reason to look into applying for one. But if you only want a credit card so you can spend more money than you have in your wallet or bank account, think twice about this decision. It might be best to stick to cash or a debit card so you’re not tempted to overspend.

Your good and bad habits paying your credit card bill will ultimately be reflected in your credit score. Your credit score is an important measure of your financial health. It’s what lenders and financial institutions use to help determine if they will offer you a loan (and how much you can borrow at what interest rate).

2. How will you pay off your balance each month?

Aim to pay off anything you charge to your card, on time and in full. Make sure you have a plan for repaying your balance every time your bill is due, because if you don’t, you’ll pay interest on that balance and start building debt. But if you can’t pay off your balance in full each month, make sure you make at least the minimum payment on or before the due date.

One way to ensure you’ll pay off your balance is by creating a budget. If you’re a Wells Fargo customer, consider using tools such as Budget Watch to automate the process of tracking your spending and setting up budget goals.

3. Are you 21 or under?

The CARD Act of 2009 aimed to protect college and high school students from getting credit cards before they were ready for the responsibility. If you’re under the age of 21, check with your financial institution for information on their requirements.

Considerations before you apply

If you decide that it makes sense for you to have a credit card in your name, here’s what you’ll want to know before you actually apply.

Do your research.

With a large number of credit cards available, you may want to do your research and consider cards specifically made for first-time cardholders. You might want to look for features such as:

  1. No annual fees.
  2. Low Annual Percentage Rates (APRs). APR is the periodic rate, expressed as an annual amount, used to compute the interest charge on an outstanding balance. On many cards, you can avoid paying interest on purchases if you pay your balance in full by the payment due date each month.
  3. Rewards. Some reward cards offer points, which can then be redeemed for merchandise or to pay for travel. But be cautious: It’s easy to overspend on your credit card because you want to get more points. For your first credit card, keep it simple and prioritize a fee-free card over a reward card. If you decide you want to make the most of the purchases you need to make anyway (like gas or groceries), try a cash-back card that can help you save a little extra money.
  4. 0% APR for an introductory period. If you transfer your balance to a card that offers a 0% APR for an introductory period, you can use that interest-free period as a way to pay off your debt within the allotted time. Calculate the monthly payment you’ll need to pay off the entire balance, and then work that payment into your monthly budget. It’s important to pay off that balance within the interest-free period to avoid interest charges and additional fees.

Consider secured cards.

Secured credit cards require you to make a cash security deposit. Your security deposit is equal to your credit line — for example, if you deposit $300, your credit line is $300. This makes it a lot harder to spend more than you can truly afford.

Understand the value of becoming an authorized user or adding a co-signer.

An authorized user is someone who has legal permission to use another person’s (say, your parent’s) credit card, but isn’t legally responsible for paying the bill. Consider becoming an authorized user to practice using a credit card, making payments, and educating yourself on statements. In some cases, you may even be able to establish credit, depending on the financial institution.

A co-signer, on the other hand, is someone who guarantees payment of the credit card bill if the primary user on the card doesn’t pay it. You might consider having a co-signer if you’re under 21, if you have little to no income, or if you don’t have a long credit history. Having the card in your name, along with a co-signer, may help to establish credit as well.

While you may be ready to be financially independent, it’s smart to have a conversation with someone — like a banker, parent, or guardian — who can help you decide what makes sense for your situation.

When you use a credit card responsibly, you’ll be able to enjoy financial benefits and build a good credit history. Thinking of a credit card as a financial health tool, along with following this guidance, can help you make better credit decisions now and in the future.

Want to read more about using a credit card responsibly?

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