How do I choose a credit card for the first time?

When you choose a credit card for the first time, you should weigh several factors. Ask yourself if you really need a credit card. If so, decide what will you use the credit card for. You should also weigh your current financial situation, and assess whether you can make monthly payments on time, and for the full amount. If you’re planning on carrying a balance, make sure you understand things such as minimum payments and interest.

Above all, be realistic in your expectations. Your first credit card will likely have a low credit limit, a high interest rates, and an annual fee. If your most viable option is a secured card, make sure you know the difference between secured and unsecured credit cards.

Here is how you choose a credit card for the first time:

• Decide if you need a credit card. If you’re starting out in the “real world,” you will need to establish credit. If used responsibly, a credit card is a valuable asset in starting the process. Good credit can set you up for future car loans or mortgages, and land you favorable interest rates. Nearly every other start-up expense such as apartment rentals, cell phones, and insurance premiums also require to have an established, and good credit profile.
• Determine how the card will be used. Whether it’s for everyday expenses such as gas and groceries, or furnishing your first apartment, understand that whatever you purchase on the card, you will have to pay back. Make sure you’re aware of your card’s credit limit, and what happens if you use up a large chunk of that credit limit.
• Take a look at your finances. Is your current salary enough to handle a credit card payment and any student loans debt on top of all the everyday expenses? Make sure you have enough funds at the end of the month to pay the credit card bill, preferably for the full amount. It’s easy to fall into the trap of setting aside just enough to cover the minimum payment, but that will end up cost you more in the long run.
• Review Terms and Conditions carefully. Compare against several cards. Research a card’s interest rate, or Annual Percentage Rate, and how that rate is calculated. Familiarize yourself with the card’s grace period, and how can avoid all those interest charges. Know your minimum payment and when it’s due. If a card has any fees such as annual fees, know that those charges will impact your credit limit.
• Consider a secured credit card. A secured card may be the better option for establishing credit. You’ll have to put up a security deposit, which will also be your credit limit. How much spending power you have depends on the size of your deposit. You’ll get a better rate, and fewer fees than with an unsecured card. Plus, if you’re responsible with a secured card for several months, you’ll be eligible for a credit limit increase, or you’ll be able to transition to an unsecured card with much better terms.

Don’t feel like you have to accept the first credit card that’s offered to you. Or every offer. A credit card can be a valuable financial tool to help build your credit. Too many credit cards too soon may be an invitation to overspend and overextend all of your available credit. That will quickly damage the very credit history you’re trying to establish.