Check these five things before applying for your first credit card

A person holding their phone and credit card, applying for a credit card for the first time

Paying with plastic might be a popular—and seemingly easy—option for many, but there’s a lot to consider before you start spending your hard-earned money with a credit card, especially if it’s your first one. Before you sign up for a credit card for the first time, you’ll want to do your research. There are many things to consider before submitting an application, from interest rates to points and rewards, but the most important part is understanding your role in this financial decision. After all, you could face some unexpected charges or begin to accumulate debt.

Before you sign on the dotted line of that credit card, here are five things you should consider ahead of putting digital ink to paper.

Determine your purpose for getting a credit card

SoFi advice strategist Alison Norris, CFP® (that’s short for certified financial planner) explained it’s important to decide whether you really need a card. She pointed out that although it’s easy to sign up and start spending, many first-time card users might be unaware of how a credit card really differs from a debit card.

To put it simply, when you buy something at a store with your debit card, the store takes the money out of your bank account within a day or so. But, when you buy something at a store with a credit card, the credit card company pays the store for your items, and then lets you pay them back within a fixed period of time, usually on a monthly billing cycle. Paying these items off on time will help you get started on building your credit score — an important part of your financial future.

“There can be unclear payoff terms and [then after spending], paying off the card can feel inescapable,” Norris said. “Anyone who is thinking about a credit card should consider whether it would be beneficial, and whether it’s the right option. If you’re someone without a savings account or you find yourself struggling to pay current bills on time, you might want to think twice before adding a credit card to your wallet.”

Christine Garton, CEO and founder of the 1,000 Dreams Fund, agreed, saying, “You will want to ensure that you are prepared to manage and pay off your credit card balances each month.”

Consider whether you have the financial means

Make sure that you have the resources and finances necessary to pay off your card. Garton recommended setting a spending limit to start, and Norris said you should resist the temptation to start spending rapidly in order to rack up rewards.

“Credit cards can be a huge time commitment to learn when you’re starting out, but they can be incredibly beneficial,” Norris said.

If you’re concerned about the financial impact a credit card can have on your overall finances, you can also keep track of your spending with the help of money management applications like Mint, You Need a Budget, Digit, Prism, and more.

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Consider a secured card

For those unsure on whether a credit card is the right decision, Norris suggested continuing the use of your debit card or selecting a secured credit card. As she explained, secured credit cards can potentially be a great starting point for would-be card-owners, as they allow you to set a spending limit.

Unlike credit cards — which have a spending limit determined by the credit card company — secured credit cards require a security deposit that determines how much you can spend. For instance, you can deposit $200, and then have $200 to spend. You can then use the card like a real credit card, and build your credit history. Some cards — from companies including Discover, Citi, and OpenSky — will then refund you the security deposit for paying your balance on time.

“A secured card acts like a hybrid credit card and debit card,” Norris explained. “It’s helpful for beginners because you won’t spend more money than you can pay off.”

Read the fine print

Look over every detail of contract or information that comes with your card, especially explanations on potential interest rates, late payment fees, grace periods and annual fees. In particular, look out for acronyms like APR (annual percentage rate) — an annual charge applied to a card with a balance — and Fixed APR, a charge rate that won’t change, unlike an introductory APR. Ideally, you’d want a credit card that comes with 0% APR, meaning you won’t pay anything each month, but if your credit card does come with an APR, experts advise looking for a single digit rate.

As Norris warned, a company might offer you a special reduced interest rate for signing up, but that doesn’t mean the payment terms or fees will stay the same. She suggests “looking down a few pages,” and keeping an eye out for any terms that would modify charges later on.

Think about your future credit score

As you begin to use your credit card and make payments on time, you’ll improve your credit score — a number that is calculated based on your past use of credit cards and other factors, including whether you paid bills on time or carried debt. Credit scores can determine your financial future, including whether you can take out loans and how much interest you may have to pay on future credit cards, because they tell potential lenders how risky you are.

Signing up for a credit card can be the first step toward something bigger. “Credit cards are a wonderful way to demonstrate your ability to manage your finances,” Garton said. “This opens the doors in the future to loans you may need to obtain for mortgages, and more. Getting started now is just a good as time as any to begin building a record of good credit.”

Remember, making an informed financial decision can put you and your wallet on the right track for years to come.