There are many questions to ask yourself as you enter the finance world and search for your first credit card. What are your short term goals? What are your long term goals? How much money do you expect to flow through your account? Do you already have a FICO score, but do not know it? Here are a few tips to help you get started.
The first step to take is to find out if you have a FICO score, and if you do, what does it mean. Federal laws allows you to obtain a free report from the three major reporting agencies, Experian, TransUnion, and Equifax, every year. The government has set up an official website, annualcreditreport.com to help navigate and inform you through this process. Once you have this information in hand, it is time to start shopping around.
Typically, scores below 700 mean you will have to accept higher interest rates and fees. If you have no credit at all, you will usually fall into this category, depending on your income. One great way to start building your score is through the use of store specific accounts. Target, Walmart, and other major retailers often qualify customers for low limit accounts which can be used only with them. Their acceptance qualifications are easier to meet than traditional companies, but they still report to the rating agencies, giving you an opportunity to build your score.
Applying for a secured account may also be an option. This allows you the use of a credit card by attaching your savings account as collateral. This type of account is usually for those with a bad score. Although these often have very little flexibility, but they are a great way to get back on track.
For those who wish to apply for an unsecured Visa or Mastercard be very careful. Check with your local bank first. Building a good reputation with a local financial institution can help you in the future. Be sure to look thoroughly through all of the terms and conditions. You will have to accept a higher interest rate to start, as well as a small upfront service charge and annual fee. These fees help offset the risk that the bank is taking.
Once you have received a credit card there are some simple rules to follow to help you build your score. Try to pay off your balance every month. If you can’t, try to keep a balance of no more than twenty-five percent of your limit. Also, regular use at least once a month helps.
Once you have received your card other companies may start sending you more offers. Resist the temptation and only take on what you can handle. Part of your FICO score is the difference between the limit you have been given, and your balance. The bigger the difference between these numbers, the better your score will be. Always remember, if you can’t make your payment on time, contact customer service and let them know. Sometimes they will delay your due date, or they may waive any late fees.
The best thing you can do is educate yourself. In the financial system, as with anything in life, knowledge is power. Start today and open a world of possibilities for tomorrow.