Getting Your First Credit Card: 3 Types of Credit Lines to Consider

Once you have your first credit card, you can use your performance with the debt to your benefit in the future. However, securing that first line is often the most difficult part of the process. When you have a short credit history, or no credit history in some cases, a credit card company has no way to know if you will manage the debt and make your payments. Accepting this fact, you can opt for a few different strategies to assure them against too much risk and get your credit card.

Secured Credit Line

The most common way a young person secures his or her first credit card is to get one from the bank where a savings account is already on file. If you have savings with your bank, you can secure a credit line based on the savings account. The process of doing this with an account already in the bank is much simpler than attempting to secure the line with an outside asset. Most banks will provide you with a given loan to value ratio on the funds you store with them. Even if your savings dip at some point, the credit limits should stay in place if you are making your payments on time. You may need a minimum account balance to open a savings account.

High Interest Credit Line

Some people will not have the cash on hand to secure a credit line. Of course, you can use other assets, but this also may not be an option. In this case, you will have to accept a higher interest rate to take on more of the burden of the loan from the lender. Credit card interest rates can go as high as 20%, so your purchases will be costly, especially if you do not pay down the debt each month. However, if you are only intending on using the card to build your credit, then you can manage the debt obligation to reduce the total cost of financing on your credit line. Be wary of lines with low or no interest rate when you are starting out. Many companies will offer these to young people only to jump the rate once you have made a few purchases.

Low Limit Credit Line

Even if you accept the high interest rate, you may still need to compromise further to get your first credit card. Remember: this is not just a tool you will use to make purchases, but also the building block to a good credit score. A good credit score will become important in the future when you seek a student loan, car loan or home loan. Think of the first credit card as an initial investment. You may have to accept a very low credit limit, below $1,000. Since you are not going to be placing large purchases on the card, this limit will work well for your purposes. If you think you need higher limits, you should check your spending to see if you may be purchasing outside the means of your current credit and income.


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