How to Choose the Best First Credit Cards
Credit cards can be a great way to build your credit score and can teach you how to sensibly borrow money. Picking your first credit card can be intimidating if you don’t know how credit cards work or which is the best for you. Read our guide for help on how to pick the best first credit card and apply for your first credit card.
What is a credit card?
Credit cards are used to borrow money. You can use credit cards to make purchases in-store or online like you would with a debit card. However, with a credit card, you are borrowing money from your lender. You’ll need to pay back this borrowed money back before the end of the month to avoid interest.
Here are the key things to keep in mind when understanding credit cards:
- Spending on a credit card is borrowing money - this borrowed money is debt.
- You should pay back this debt every month.
- If you don’t clear your debt every month you’ll be charged interest.
- If you miss a monthly payment you’ll damage your credit score. Your credit score will influence your chances of getting a mortgage for a house, personal loans, and other services.
What are credit limits?
Your credit limit is the maximum amount of credit (money) you can borrow from your provider on your credit card. Everyone’s credit limit is different as lenders decide your limit based on your credit score and history.
If you are considered high-risk as you have a bad or non-existent credit history then you’ll be offered a lower credit limit. Expect a fairly low credit limit if you are getting your first credit card.
What is interest?
Interest is a fee that your credit card company charges for borrowing money. Interest will be added to your credit card balance if you don’t pay back what you’ve borrowed before the end of the month.
Interest is calculated as a percentage of your credit card balance. The average credit card interest rate in the UK is 20.77% per year. This will vary depending on your credit history and type of card.
What is APR?
APR is the annual percentage rate of a credit card. This represents the annual interest rate of your credit card. For example, if a credit card has an APR of 24%, that’s the total amount of interest charged over a year. Therefore, your interest rate will be 2% per month.
For example, if you spend £500 on your credit card one month and don’t pay it back, you’ll be charged interest. If you have 24% APR, you’ll be charged 2% which will be £10. You’ll now owe £510. Every month that passes another 2% will be added, depending on what your actual APR is.
What are minimum payments?
Your minimum payment is the smallest amount you must pay back each month on your credit card. If you fail to pay back at least the minimum amount each month you’ll usually be charged a penalty fee and it’ll be marked on your credit history.
Your minimum amount will vary on each card, it can be as low as 1% of your total balance on some cards. Remember, the minimum monthly amount set by your card provider is designed to keep you in debt. If you only pay the minimum amount each month, you’ll accrue interest on your remaining balance. Aim to pay off your full balance each month.
Can I get a credit card without a credit history?
If you’ve never had a credit card or taken out any form of credit before, then you won’t have a credit history. If you don’t have a credit history, then your credit score may be low. Whilst this may seem a little unfair, it’s because you haven’t proved whether you can sensibly borrow and repay money yet, so lenders will see you as a risk.
Why does my credit score matter?
Your credit score is an important indicator of your creditworthiness. This demonstrates how responsible you are with money and borrowing. Credit scores help lenders decide whether to give you credit or not. It also contributes to how much interest you’ll be charged and what your credit limit is.
How to improve your chances of getting your first credit card
Before you apply for your first credit card, there are a few things you can do to improve your chances of getting accepted:
- Register to vote: signing up to the electoral roll helps to provide your proof of address. This helps to improve your credit score.
- Open a bank account: managing a current account demonstrates financial responsibility which can improve your history. If you set up direct debits to pay off any bills and put away savings, you’ll look reliable and trustworthy with money.
- Pay bills on time: if you can prove that you’ve been paying bills on time for at least six months, this will prove your financial responsibility to lenders.
- Regular income: if you are taking out your first credit card, you might have just left education and not have a regular income. Try to get a part or full-time job to prove that you can pay back the money you borrow.
How are first credit cards different from normal credit cards?
First credit cards work in the same way as regular credit cards. However, first credit cards have two key differences:
- Lower credit limits: first credit cards tend to come with lower credit limits compared to standard credit cards. This lower limit is usually between £100 and £1,200. Some first credit cards might allow you to increase this limit over time if you can prove you are borrowing sensibly.
- Higher APR: credit card providers will see you as a potential risk as you haven’t borrowed money before. To negate this risk, lenders will charge higher interest rates on the money you borrow.
First credit cards aren’t all bad though. They tend to offer some helpful tools to help you manage your finances and build a good credit history. These tools can include:
- Free credit reports - some first credit cards will give you free access to your credit report so you can see exactly what your card issuer sees. The ability to constantly check your credit file is likely to keep you on track with your finances.
- Mobile apps - banking mobile apps allow you to manage your finances whilst on the move. You can see your statement, check your balance, pay bills and set up direct debits or standing orders.
- Text alerts - you can sign-up for text alerts that will remind you when you need to pay your credit card bill and warn you if you are nearing your credit limit.
- Payment flexibility - first credit cards might allow you to move your monthly repayment date to one that suits you better.
Things to consider before you apply for your first credit card
Before applying for your very first credit card, you need to fully understand the risks and costs of using a credit card. Consider the following things:
- Too many applications harm your credit score - if you keep applying for credit cards and get rejected, your credit score will drop. Instead, use an eligibility checker first. The main credit card providers offer this checker on their websites and it won’t be marked on your credit history. Choose a few credit cards aimed at first-timers and check your eligibility before applying. If you are unlikely to be accepted for any of them, work on improving your credit history first.
- Hidden fees - credit cards can charge a lot of fees so make sure you read the small print. Your card might charge an annual fee, balance/money transfer fees, a fee for withdrawing cash and penalty fees for late payments or exceeding credit limits etc.
- Debt grows quickly - if you don’t clear your balance every month, interest will be added, making your debt even bigger. If months pass and you are just paying the minimum, you will accrue significant debt. Only get a credit card if you can comfortably afford to pay back what you owe every month. Otherwise, you could end up in credit card debt.
How to get your first credit card
After using an eligibility checker, you can apply for your first credit card online, via post, over the phone or in-person at your local branch. Online is the easiest way to apply but if you want to talk it through in person, the phone or your local branch is a good option.
You’ll need to provide the following information:
- Full name
- Date of birth (need to be over 18)
- Employment history and current status
Will I qualify for a credit card?
Each credit card will have it’s own individual acceptance criteria. However, in general, the following will be considered:
- Age - most credit cards will require you to be 18 or older.
- Income - you might have to earn a certain amount of money or be in full-time employment.
- Financial history - any County Court Judgements or bankruptcies will put lenders off giving you credit.
- Credit report - your credit report is one of the most important factors lenders will consider.
Often, credit cards have an eligibility checker. Use these tools before applying to see if you will be eligible for it. If it says no, then don’t apply.
What if my credit card application is declined?
If your first credit card application is rejected, do not apply for the same card again! Most credit cards will automatically reject your application if you’ve already applied and been declined in the past six months.
Before applying for your next credit card, try to build your credit history and clean up your finances to prove you’re a responsible borrower. Always use an eligibility checker before applying for a credit card so you have an idea of whether you’ll be accepted or not.
How to choose your first credit card
When comparing your first credit card, there are a few points to keep in mind. Consider the following:
- Representative APR - when comparing credit cards, look at the ‘representative APR’. This is the interest rate that card offers to at least 51% of applicants. This means that you might be charged higher than that APR if you got accepted. However, it’s a good way to compare cards, the lower the APR, the less interest you’ll be charged.
- Introductory APR - some credit cards might come with lower or even 0% interest rates for the first few months of use. After the introductory period, the interest will return to normal. This can be useful if you need to spread the cost of an expensive purchase and avoid interest. Compare cards to see which ones offer this.
- Credit limit - different cards will offer different credit limits. If you don’t have a credit history, the credit limit you are offered will be low. You can shop around and ask providers what their average first credit limit is. You’ll likely be able to increase this limit over time.
- Fees - shop around to see which credit cards charge monthly or annual fees and which don’t. Ideally, your first credit card won’t charge an annual fee as it’s unlikely it’ll offer you any bonuses like rewards or cashback. Bear in mind that there are other fees to take into account such as for cash withdrawals or using abroad. If you’re planning to use your credit card abroad, consider travel credit cards.
What credit cards are there?
With so many credit cards to choose from, you might want to take a look at all of our credit card guides to help you decide which one is for you. Remember, some of these credit cards might require a good credit history but some may consider those who haven’t had a credit card before.
- 0% purchase credit cards - these cards won’t charge you any interest on purchases for a certain period of time, sometimes for up to 20 months.
- 0% balance transfer credit cards - if you need to shift high-interest credit card debt from one card to another, this card could be for you! It won’t charge you any interest on your transferred debt for up to 36 months.
- Rewards credit cards - earn points or vouchers for every pound you spend with a rewards card.
- Cashback credit cards - this is a type of rewards card. You can earn a percentage of cash back for every pound you spend using the card. This cash can then be spent how you like.
- Airline credit cards - another type of rewards card. You can earn air miles or travel-related perks every time you spend using the card.
- Travel credit cards - avoid foreign transaction fees and other charges when using your card to spend abroad.
- Student credit cards - this card is designed specifically for students who may not have a credit history or regular income.
- Credit cards for bad credit/credit building cards - if you have a poor credit score, these cards can help you to rebuild your credit history whilst borrowing money.
Should I get a credit card?
Before getting a credit card, you need to think about whether you need one. Never get a credit card if you just feel like you should, it needs to be a conscious decision that fills an actual need.
To help you decide, we’ve listed out the pros and cons of first credit cards below.
Pros of first credit cards
- Build a credit history - sensibly using a credit card is a great way to build up a strong credit history. This can increase your chances of getting accepted for more credit in the future.
- Purchase protection - any purchases made between £100 and £30,000 are protected under Section 75 of the Consumer Credit Act. This means that if your purchase is faulty, never turns up or the company goes bust, your credit card provider and retailer are jointly liable to refund you.
- Borrow money instantly - if a sudden emergency comes up that you need to borrow money for, you can use your credit card. Make sure you can afford to repay quickly though to avoid too much interest.
- Spread the cost - if your card comes with an introductory 0% interest period, you can spread the cost of large purchases over several months. Try to clear it before interest kicks in again!
- Fraud protection - notice fraudulent charges on your credit card and all you need to do is report them to your lender to avoid paying them. This extra protection can help put your mind at ease.
Cons of first credit cards
- Debt - it can be easy to borrow more than you can afford to pay back each month. This means that debt can begin to build up quickly.
- High-interest rates - first credit cards especially tend to have high-interest rates. Always try to pay back your balance before the end of the month to avoid added interest.
- Risk to your credit score - if you are unable to afford at least the monthly minimum payments you could damage your credit score. Exceeding your credit limit will also damage your credit score.
- Fees - credit cards can come with several different fees. For example, annual fees, cash withdrawal fees and penalty fees.
- Low credit limit - your first credit card is likely to have a low credit limit. This means you are restricted to a smaller amount of credit available to borrow. Make sure you don’t exceed this amount or you’ll be charged a penalty and it’ll affect your credit score.
How to use your first credit card
When used properly, credit cards can be a great tool to have. Follow our golden rules to get the most out of your first credit card:
1. NEVER miss a monthly credit card payment
Having a consistent payment history is one of the best ways to get a good credit score. So, make sure that you pay your credit card bill every month, even if you only pay the minimum. This will boost your credit score and you won’t be charged any late fees.
The best way to never forget to pay is to set up a monthly direct debit from your bank account to the credit card. Outstanding debt will automatically be paid every month, for as long as you have enough money to cover it.
2. Try to clear your balance every month
The best way to make the most of your credit card and avoid paying interest is to pay back what you borrow in full every month. This is why it’s so important to only spend what you can afford to pay back.
A credit card isn’t free money, you need to pay that money back. Work out what your monthly outgoings will be on your credit card. Then, you can set up a direct debit to pay back this amount every month so you know you are clearing your debt monthly.
3. Stay below your credit limit
Your first credit card is likely going to have a low credit limit because lenders can’t judge your credit history if you don’t have one.
But you should NEVER exceed this credit limit, even if it appears to be very low. If you overspend, you’ll be charged a fee and it will be marked on your credit history, damaging your score. Keep on top of your spending and budget responsibly.
4. DON’T apply for too many credit cards
Applying for credit cards regularly will damage your credit score. When you apply for a credit card, it’s classed as a ‘hard search’ which will appear on your credit record. Too many ‘hard searches’ and lenders will believe you are desperate for money and are struggling financially. As a result, future applications are more likely to be rejected.
Time your application right and only apply for a card if you need one. If you are rejected, don’t apply for another straight away! Use eligibility checkers and work to improve your score.
5. Watch out for hidden fees
Every time you withdraw cash or carry out a balance transfer on most credit cards, you’ll be charged a fee. Using your credit card abroad could also see extra fees added to your bill. Always check with your provider what fees your credit card charges so you can plan ahead and avoid racking up fees.
I can’t meet my minimum credit card payments due to coronavirus. What should I do?
Coronavirus has put a financial strain on many. If you have a credit card and are struggling to meet your minimum repayments, you may be eligible for help.
The Financial Conduct Authority (FCA) has introduced measures that allow you to request a freeze on credit card repayments for 6 months. However, you may still be charged interest in this period.
You have until the 31st March 2021 to request a freeze but make sure you agree with your lender before stopping repayments. This won’t leave a bad mark on your credit history either due to the exceptional circumstances.
If you can afford to keep paying, it’s best to do so as you will still be charged interest during this holiday period.
All payment holidays must end by 31st July 2021.
For more information on credit cards, check out our guide on the best credit cards.