As rates and prices rise, is it a bad time to get your first credit card?


Rising costs for everyday expenses such as food, gas and housing have had a direct impact on young adults and recent college graduates interested in applying for their first credit card.

There are many reasons why you might be reluctant to get your first credit card, including rising inflation and potential financial risks. But by getting a credit card now, you’re putting yourself in a position to have greater control over your future finances while earning rewards, sign-up bonuses, and great member benefits.

What are the benefits of getting your first credit card?

Rising prices can make it tempting to wait until you have more money, a better job, or a better life situation before getting your first credit card. But there are notable benefits to getting your first credit card as soon as possible. Having a credit card can help you:

Learn to manage your finances

One of the biggest fears about getting a credit card is running up debt and not being able to pay it off. However, if you’re careful with your spending habits, a credit card can be a great way to teach yourself how to manage your budget properly. You’ll learn how much money you need each month and how much to set aside for unexpected expenses, such as car repairs or medical bills.

Build your credit history

Credit cards also help build a credit history, which can help you establish a good financial reputation early in life. Your FICO score is calculated based on several factors, including how long you’ve had a good payment history and whether or not you have any late payments on your report. Having a credit card early on can help boost this part of your score, so when you apply for a mortgage or car loan in the future, lenders will see that you’ve been responsible and will likely continue to pay your bills on time.

Earn rewards on your purchases

Credit cards often come with a rewards program that gives you cash back or other perks if you use them to make purchases. Some even offer miles or points that can be redeemed for travel or merchandise.

Cash back is one of the most popular incentives offered by credit cards. Many cash back cards have no annual fee and provide a percentage of cash back on every purchase made with your card. For example, if you spend $2,500 and can earn 5% cash back, you could earn up to $125 in cash rewards (assuming there are no other fees).

If you pay down your balance each month and avoid going over your approved credit limit, these rewards can add up and be worth hundreds or even thousands of dollars each year, depending on how much you spend.

Manage emergency situations

With a credit card, you have a safety net so that when things go wrong, like unemployment or a medical emergency, there’s always money available – even if it means charging something extra. as little as $15 to make a payment until payday arrives.

What are the disadvantages of getting your first credit card?

While there are major benefits to getting your first credit card in 2022, there are also potential issues. These include:

Ongoing charges

Some credit cards don’t charge annual fees, but for cards with premium benefits, those fees can exceed $50 per year. You could try aiming for $0 annual fee cards instead, however, if you earn high rewards on purchases, you could easily recoup what you spend on the annual fee.

But in addition to the annual fee, there may be other fees to consider, such as foreign transaction fees, balance transfer fees, or late payment fees. It is therefore important to read the fine print before applying.

Rising interest rates

The biggest downside to getting your first credit card at this point in history is that interest rates are currently on the rise. This trend started in March 2022 and shows no signs of slowing down. With card APRs rising along with federal interest rates, if you end up running into a balance, the high interest charges could make up a big chunk of your monthly expenses.

But despite the higher rates, you can still benefit immensely from getting your first credit card, enjoying the perks and rewards – if you manage your credit card balance responsibly.

Possibility of missing payments and accumulating debts

If you use your credit card too often and don’t pay off your balance each month, you could end up in a lot of debt and paying a lot of interest over time. In fact, according to the Federal Reserve Bank of New York, Americans owed nearly $841 million on their credit cards in the first quarter of 2022.

This means that even if you make each payment on time, interest will continue to decrease your available credit if you don’t pay the bill in full each month. And if your interest rate is high (which is why it’s important to find a low-interest card), going over your credit limit could put your account in default. If this happens, it will show up on your credit report and negatively impact your credit score.

How to know if it’s the right time to apply for your first credit card

If you’re just starting out as a young adult and don’t have a lot of income yet, you might think it’s best to wait until you get your first credit card. However, if you have secured at least a part-time job, scholarship or regular income, or if you have already established yourself in your career and can afford to maintain a balance, then now is a great time to get your first credit card. . Do your homework, understand interest rates and fees, and choose a card that fits your financial goals.

What to do when using your first credit card

  • Pay off balances monthly to avoid interest charges and penalties. Some cards charge annual fees and higher interest rates for people with limited credit histories or high balances. If you only pay the minimum required balance each month, the interest charges will outweigh any rewards you earn on your purchases (unless you get a particularly high cash back or bonus miles/points).
  • Watch for changes in interest rates and fees with the cards you’re considering. Many rewards credit cards offer 0% introductory APRs on balance transfers or new purchases, but these may come with strings attached. The 0% APR period often ends after 12-21 months and the normal rate suddenly kicks in on any remaining balance at this point, sometimes up to 20%. So if you’re considering transferring a large balance to one of these cards, only do so if you can pay off the entire balance before the introductory rate expires.
  • Build an emergency fund that covers at least three to six months of expenses. While it’s true that the cost of borrowing is higher than in the past, you can always ride out market fluctuations by building up an emergency fund and smartly evaluating how much you’re charging your card each month. (High usage rates can lead to higher interest rates on savings and credit cards.)

What You Should Avoid When Using Your First Credit Card

  • Avoid using your credit card for cash advances to cover emergencies or unexpected expenses. A cash advance is when you use your credit card to get money from the bank, usually through an ATM or check cashing service. Cash advances have higher fees and interest rates than regular purchases, so they will cost you more in the long run.
  • Avoid credit card payment delays by setting up different payment options that suit you. Missing payments can hurt your credit score enough that it takes years to recover from the damage. To avoid this, set up automatic payments so that your balance is paid in full by the due date each month. If automatic withdrawals aren’t available through your bank or credit union, consider setting up an online bill payment service with another institution that offers this service directly through their website or app, such as Prism.
  • Avoid making major credit changes before applying for a loan, such as refinancing or closing a credit card account. When you apply for a loan, lenders will consider all of your current assets and liabilities as part of their decision-making process. It’s best to keep all your old accounts open until the application has been submitted and approved. Even if they have high balances, they still help build a good credit history and may be worth keeping for now.

The bottom line

Developing good financial habits is important. Even if you are concerned about the current economic challenges, getting your first credit card in 2022 can be extremely beneficial for you.

If you avoid spending more money than you have, pay your bills on time, and keep a low balance, you’ll be much better prepared when it comes time to buy your first home or car. No matter how good the economy is when you finally decide to take the plunge, the right credit card can be a handy tool for improving your credit, managing your day-to-day finances, and bringing you a little closer to your loved ones. financial goals.


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