If you’re on the hunt for your first credit card, there can be a lot to consider. In addition to finding one that has great features, the lender may have strict requirements about which applicants they accept.
In this post, we’ll explore some important points to know before starting your search. We’ll also talk about what this means for people looking for a credit card for no credit history.
1. Your Credit Score
Your FICO Score will be the number one factor in determining whether or not you’ll be approved for a credit card. Before you start shopping around, you’ll want to make sure you know what range your credit score falls in (i.e. Fair, Good, Very Good, etc.) so that you’ll know which products are for you.
Since this is your first credit card, you’ll most likely want credit cards for people with no credit history. These will generally be “student cards” and are made especially for applicants with limited income and low credit scores.
An easy way to find out your FICO Score is to sign up for a free account with Experian. Another way to check is by visiting myfico.com.
2. Your Debt and Income Figures
Every credit card issuer is going to want assurances that you’ll be able to make your payments. To do this, they’ll look at something called your debt-to-income ratio.
This will include:
- All reoccurring monthly debts – Minimum credit card payments, rent/mortgage payments, auto loan payments, student loans, etc.
- Gross monthly income – Employment income plus any other consistent income sources
What’s a good debt to income ratio? A general rule of thumb is 43 percent or less.
3. The Rewards Potential
Not all credit cards are made the same. Even if this is your first credit card, you may still be able to find one that offers rewards perks.
This might include:
- An introductory bonus (i.e., $500 after spending $4,000 within the first 3 months)
- 1 to 2 percent cash back for every dollar spent
- 6 to 12 months with a zero percent APR
Again, the best way to know for sure is to check your FICO Score and then look for products that fit your credit profile. From there, you can then seek out the ones that have the greatest rewards potential.
4. The Payment Terms
Another thing to watch out for as you’re sorting through the options is the payment terms. This will generally be things like the:
- Interest rate (APR) – If you’re not able to pay your balance off in full each month, how much interest will you be charged?
- Annual fee – Is there a cost each year to be a cardholder?
- Late fees – If one of your payments is late, how much will you be charged?
5. Alternative Options
If you’re worried you won’t qualify for a credit card or you get turned down, it won’t be the end of the world.
Another type of credit card you could apply for is something called a secured credit card. This one requires a security deposit upfront to use as collateral in case you’re not able to make your payments.
While the security deposit can be a little offsetting for some people, the benefit is that these types of cards will accept applicants with lower incomes and no credit history. At a minimum, it could be a good stepping stone to a more advanced credit card in the future after you’ve built up your credit score.