What to Know Before You Apply
How do credit cards work? What should a beginner compare? How can someone avoid taking on unnecessary debt? Get the answers to these questions and learn the steps needed to choose, apply for and responsibly manage a first credit card. In this blog, we'll discuss key terms focusing on credit cards for beginners, secured and unsecured cards, application factors, payment habits and credit-building basics.
What Should You Know Before Getting Your First Credit Card?
The first things to understand about credit cards are that they are used as a borrowing tool and a way to build credit, not extra income. They are different from loans because of their revolving line of credit. While credit cards can become overwhelming for first-time users, here are some tips to help you understand how they work:
- Understanding terms and managing costs: When choosing a credit card, it is important to read the terms of the card agreement so you can fully understand them. It’s also important to understand all the costs associated with the card, such as the annual fee, if any. For example, Travis Credit Union’s Platinum Visa and Signature Visa do not have an annual fee.
- Understanding credit limits and monthly statements: A credit limit is the maximum amount that a credit issuer will let a cardholder borrow from one card account. The credit issuer will set a credit limit on the card and will send a monthly statement listing purchases, completed payments, the minimum amount and due date, fees, and interest charged.
- Dissecting approval, APR and rewards: Approval for a credit card, the credit limit, the APR (Annual Percentage Rate), any credit card rewards and other terms are determined by the credit card issuer and the individual applicant’s qualifications, such as their credit score and monthly income.
- Determining payment structure: To help prevent overspending once you are issued your first credit card, it is smart to plan your purchases. A credit card may be used for routine purchases such as gas or groceries, for emergencies or for miscellaneous purchases. Be sure to stick to your credit card plan and to make your payments on time, which will help establish a good payment history and good credit.
How Do Credit Cards Work?
Credit cards work by allowing the user to make purchases with credit instead of cash. When you use the card, the credit card issuer pays the merchant, and the cardholder agrees to repay the amount spent plus interest, as outlined in the credit card agreement. Understanding all the credit card’s components is important:
- Billing cycle: This is a month-long period between billing statement close dates.
- Statement balance: The total amount owed at the end of a billing cycle.
- Current balance: The total amount owed now.
- Minimum payment: The lowest amount that must be paid by the due date to avoid late fees and negative marks on your credit report.
- Payment due date: The last day to make a payment before it is reported as late.
- Grace period: The time between the end of the billing cycle and the payment due date. Within this window, you can make payments without being charged interest on new purchases.
- APR: This stands for Annual Percentage Rate and is the yearly interest rate on the account.
- Credit limit: The maximum amount that can be borrowed from the account.
When making payments, paying only the minimum amount due can extend your repayment by months or years, increasing interest costs. With your first credit card, you do not generally need to carry a balance or pay interest to build credit; on-time payments and responsible utilization are more important because they show you can manage your money effectively.
How to Choose Your First Credit Card
A good first credit card is one that matches your needs and how you plan to use the card. When selecting a credit card, compare the total costs including any annual fee and the interest rate offered. A lower-cost credit card may be more manageable than a card with a complicated reward system or complex promotional terms.
It’s also important to review the cardholder agreement and any disclosures before applying for a credit card to ensure the card matches your financial needs. There is no one best credit card for everyone. The right one will depend on your credit history, spending habits, repayment plans and eligibility.
Here is what to look for in a credit card. Determine the features that matter most to you and find credit cards that fit those goals:
- APR
- Annual fee
- Late fee
- Foreign transaction fee
- Penalty terms
- Grace period
- Rewards
- Introductory offers
- Credit limit
- Account management tools
You can learn more about credit cards at the Consumer Financial Protection Bureau.
Secured vs. Unsecured Credit Cards: What are the Differences?
A secured credit card typically requires a refundable security deposit, while an unsecured card does not require a deposit and is approved based on the card issuer’s underwriting standards. For secured credit cards, a security deposit is not the same as a monthly payment and does not automatically cover charges.
Secured cards may be best for those who have limited credit history. If one of your goals for the credit card is to build credit, confirm that the card issuer reports account activity to the major credit bureaus. Unsecured cards may be best for those with an established credit history, but for both secured and unsecured credit cards, approval is never guaranteed.
Secured versus unsecured credit cards have additional differences as shown below:
| Feature |
Secured |
Unsecured |
| Deposit Requirements |
Refundable cash security deposit |
No deposit needed |
| Credit Limits |
Usually equal to security deposit amount |
Based on borrower’s qualifications |
| Reporting to Credit Bureaus |
Report the same way |
| Upgrade Possibilities |
Designed to transition to unsecured |
No upgrade because there is no deposit |
| Refund terms |
Reduces current balance |
How to Apply for a Credit Card for the First Time
Before applying for a credit card for the first time, review the card agreement as well as your own credit report, which you can get here. Review card terms, confirm eligibility and gather your identity, contact, income and housing information that is needed to apply.
A credit card application may lead to a hard credit inquiry. Submitting several credit card applications in a short period can negatively impact your credit score. When comparing credit card options from different issuers, know that requirements and information requested may vary. Here are some steps for first-time applicants to follow:
- Check credit information
- Narrow your options
- Review credit card disclosures
- Apply once
- Respond to verification requests
- Read the approval terms before using the card
If an application is declined, you still have options. You can review the adverse-action notice, correct any credit report errors, wait before reapplying or consider a secured credit card option when appropriate.
How to Use Your First Credit Card Responsibly
When using a credit card for the first time, charge only amounts that you can afford to pay, review every monthly statement, make your payments on time and keep the balance low compared to the credit limit. To ensure you don’t miss a payment, set up payment reminders or automatic payments. Since paying different balances can become confusing, here’s a simple explanation of each:
- Paying the minimum balance: Paying the smallest amount the issuer requires you to pay each month to keep your account in good standing.
- Paying the statement balance: Paying the exact total amount you owed at the close of your previous billing cycle.
- Paying the current balance: Paying the exact total amount of money owed on the account up to this moment.
Try these tips when you start using your first credit card. Start with one or two predicable, small purchases rather than moving all your expenses onto your card. Learn more about responsible credit card use. Travis Credit Union’s Knowledge Base offers a free financial education course on Using Credit Cards Responsibly. It is also important to set up alerts on your card account so you can quickly report any unauthorized charges. Remember that any cash advances or certain transactions will have separate interest terms and/or fees associated with it.
How Can a First Credit Card Help Build Credit?
A credit card can help establish credit when the card issuer reports the account and the cardholder consistently pays their balances on time. There are several different factors that determine your credit score:
- Payment history: Timely bill payments establish a positive payment history.
- Credit utilization: This is the amount of your credit limit you have used per billing cycle.
- Account age: This is how long your credit card account has been open.
- Credit mix: This includes a variety of different accounts such as credit cards, mortgages, auto loans and other loans.
- New applications: Each application can trigger credit checks or hard inquiries.
When using a credit card to build credit, you don’t need to carry a balance to make it count; paying off any balance each month helps. It is also important to monitor your credit report and dispute any inaccurate information that could negatively impact your credit history and credit score. Remember that building credit with a credit card takes time. Results will vary depending on your individual credit profile.
Fortunately, there’s information that can help you. With Knowledge Base’s Understanding Credit Reports and Scores Course, you can learn how your credit score is calculated and how financial activity affects it. Another resource is the Consumer Financial Protection Bureau’s section on understanding credit scores.
Common First Credit Card Mistakes to Avoid
There are common mistakes to avoid when using credit cards for the first time. Use these tips below to help build stronger financial habits.
| Common Mistake |
Better Habit |
| Spending beyond your budget |
Stick to your budget and remain below your credit limit |
| Missing payment due dates |
Set up automatic payments |
| Paying only the minimum amount over a long period |
Focus on paying off your statement balance instead of the minimum payment |
| Ignoring statements |
Read your statement every month |
| Applying for several credit cards at once |
Apply for one credit card at a time or focus on pre-approved card offers |
| Chasing rewards |
Pick one reward as a goal to work towards |
| Taking cash advances without reviewing costs |
Review the interest and additional costs for cash advances |
| Closing an account without considering the broader impact on your credit |
Review your credit and determine if it makes sense to close your account |
Using a credit card for the first time is easy once you know how to avoid mistakes that could cost you money and lower your credit score. Every rule may not apply to every cardholder. Be sure to review your credit card agreement and consider your financial situation so you can use your first credit card wisely.
How Travis Credit Union Can Help
Travis Credit Union is proud to be a financial education resource and advocate for our members and the Northern California community. TCU’s Credit Card page can help you compare card options, rates, eligibility, requirements, rewards and disclosures.
As mentioned, TCU's Knowledge Base offers several courses on credit cards to help you manage your card and build your credit. Get started by applying for a TCU credit card or learn more about how TCU membership can help you reach your financial goals.
Frequently Asked Questions
What should I know before getting my first credit card?
A credit card is a borrowing tool and a way to build credit, not a source of extra income. Before applying, learn key terms, understand fees and interest rates and create a plan for how you will use and repay the card.
How do credit cards work?
A credit card allows you to make purchases using borrowed money that you agree to repay according to the card agreement. The card issuer pays the merchant, and you repay the amount spent, plus any applicable interest or fees.
What is a credit limit?
A credit limit is the maximum amount a card issuer allows you to borrow on a credit card account. Staying well below your limit can help you manage spending and support healthy credit habits.
What should I compare when choosing my first credit card?
Compare features such as APR, annual fees, late fees, foreign transaction fees, grace periods, rewards and account management tools. The best card is one that fits your financial needs, spending habits and ability to repay balances.
What is the difference between a secured and unsecured credit card?
A secured credit card requires a refundable security deposit, while an unsecured credit card does not. Secured cards may be helpful for people with limited credit history, but approval is not guaranteed for either type of card.
What information do I need when applying for my first credit card?
Most issuers will ask for identity, contact, income and housing information during the application process. It is also a good idea to review your credit report and compare card terms before applying.
Can applying for multiple credit cards affect my credit score?
Yes, submitting several credit card applications in a short period may result in multiple hard credit inquiries. These inquiries can affect your credit score, which is why it is generally best to apply only after narrowing down your options.
Do I need to carry a balance to build credit?
No, carrying a balance and paying interest are not required to build credit. Making on-time payments and keeping your balance low relative to your credit limit are more important factors.
What are the best habits for using a first credit card responsibly?
Charge only amounts you can afford to repay and make every payment on time. Reviewing statements regularly, setting up payment reminders and keeping balances low can help you avoid unnecessary debt and build good credit.
What common mistakes should first-time credit card users avoid?
Common mistakes include overspending, missing payment due dates, paying only the minimum balance for long periods, and applying for several cards at once. Reading your statements, sticking to a budget and understanding your card terms can help you avoid these issues.