What to do before applying for your first credit card
1. Decide if you really need a credit card
Credit cards can be useful. They can help you out in emergencies (genuine ones, not needing new trainers). And they usually enable you to borrow money for free - providing you pay the full balance by your due date. Any outstanding balance not paid by the due date will have interest charged. The less credit history you have (which unfortunately is an inevitable consequence of being young), the higher the rate of interest tends to be.
Using a credit card responsibly can also be an excellent way of building up your credit history, which could help to improve your credit score.
But, if not used properly, they can lead to you racking up unmanageable debt. They are best used sparingly, and if you repay the full amount every month on time, you’ll avoid interest and late payment charges - so keep your spending down. If you don’t feel like you will gain from these benefits then there is no need to get one. Especially if you are worried it might lead to temptation and frivolous spending.
You can read more about the pros and cons of credit cards here.
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2. Can you afford to pay it back?
Credit cards are a form of borrowing, so you need to ensure that you can pay back any money you borrow. Each month you will need to pay at least the minimum payment to avoid missed payment charges.
Set up a direct debit or set yourself reminders to ensure the money does get paid. Failing to meet your payments can damage your credit score, and if it happens regularly it can lead to a default or even a CCJ. These are both extremely damaging for your future lending prospects and will hinder your credit applications for up to six years (even if you pay the debt in full).
Make sure you can pay the minimum amount each month, but try to pay more to reduce the amount of interest you pay.
If you can, it’s great to get into the routine of paying the balance in full (which can also be done via direct debit) as this will mean you pay no interest at all.
3. Earn a regular income
Lenders are less likely to offer you a credit card unless they can see that you have the capability to pay it back. A regular, fixed income paid directly into a bank account will demonstrate this to them. It’s also likely that the amount of money you earn will influence the credit limit that is offered to you.
This is because lenders need to be assured you will pay the money back. This is for their own financial reasons, but also to protect you from falling into a debt situation you cannot handle. You should also factor in your income into how much you spend on a credit card each month. Make sure that you will earn enough to pay it back in as timely a fashion as possible, and at least meet your minimum payments.
4. Register to vote
One of the easiest ways to improve your credit score, and make it more likely you will be accepted for a credit card, is to register to vote. Doing so confirms your identity to lenders, which helps build your credit profile.
You can register to vote here.
Which credit card should I apply for?
If you are young and/or have a thin credit history, it will likely be one with a higher interest rate, but you may be eligible for better deals than you think.
The first thing to do is research. It’s good practice to always use soft search facilities before making any credit application, be it for a loan or a credit card. When financial institutions run a hard search on you, it gets recorded on your credit report which can reduce your score. Too many applications can give the impression you are struggling with money and could put off lenders.
You may also have a stronger chance of acceptance with the company you bank with if you have a good history with them - particularly if you are a student and have a student account.
Alternative cards for under 18s
Under 18? You are too young to get a legitimate credit agreement as the credit is not offered to anyone under the age of 18. This includes loans, overdrafts and credit cards. But all is not lost; there are still options open to you which provide you with a way to make purchases electronically.
These include getting a debit card with your bank. This will allow you to spend the money in your account using card transactions. You could also opt for a prepaid card, which you will need to load up beforehand with cash.