Credit cards, when used responsibly, can be incredibly powerful tools that help you build your credit history, earn valuable rewards, cover a surprise bill that shows up a few days before payday, and even protect against theft. identity and other financial emergencies.
But how do you actually go about getting a credit card once you’ve decided you want one?
Next, we explore how credit cards work and we outline the main steps you should take to identify the perfect card for your needs and apply for it.
How do credit cards work?
You probably already know what a credit card is: a plastic (or sometimes metal) card that you can swipe to borrow money from a lender (usually a bank or credit card company) to make a purchase. You can think of a credit card as a loan that you can use to pay for whatever you want.
Simply put, credit cards work like this: As long as you pay off your balance before the end of the payment period, you won’t be charged any money for using your card, outside of its annual fees. But if you don’t pay your balance before the end of the period, you will be charged an interest rate (or APR) in addition to this.
The average credit card has an interest rate of 19.24%, but that figure can vary significantly depending on your credit score and other factors, from 10 or 12 percent to more than 30 percent. (That’s why it’s so important to avoid racking up credit card charges that you can’t pay right away.)
How to get a credit card
Step 1: Understand why you want one
Before you begin the process of applying for any card, you need to understand your own personal motivations for wanting one, because your answer to this question will determine much of the rest of your search.
So ask yourself:
Once you know what you’re hoping to get out of having a credit card, you’ll be much better prepared to identify the cards that fit your goals and, just as important, disqualify the ones that don’t.
Step 2: Check your credit reports
Ultimately, whether or not you are approved for a credit card and the interest rate you will be charged will depend largely on your credit score and the information found in your credit reports. So to avoid any unpleasant surprises during the application process, it’s a good idea to review your credit reports yourself.
There are a number of free online services (such as Credit Karma, Credit Sesame either Credit.com) that allow you to check your credit score extremely quickly, usually within minutes, which can give you a basic idea of what your credit looks like.
Ultimately, however, you should request your full credit report from each of the three major credit bureaus to see exactly what is on your report and what factors are affecting your score. Periodically reviewing your completed reports can have a number of benefits, allowing you to identify and eliminate errors from your report that could cost you thousands of dollars in higher interest rates.
¿You don’t like what you see? There are many steps you can take to improve your credit score before applying for a credit card, to increase your chance of being approved and getting the best possible interest rates you can qualify for.
Step 3: Compare your options
Once you’re sure your credit report is accurate and your credit score is as high as possible, you can start comparing your options to find the right card for you.
Just as you wouldn’t buy the first car you see, you shouldn’t sign up for the first credit card offer you stumble upon. You need to do your research to make sure you’re choosing a credit card that will help you reach your goals while also being as affordable as possible.
While each person’s requirements for a card will be unique, some factors to consider are:
- Does the card offer you an interest rate that’s fair for someone with your credit score, or can you find a better rate elsewhere?
- Does the card offer a rewards program (or other benefits) that are important to you?
- Does the card carry significant annual fees that will reduce the value of these rewards?
While you can manually compare your options on your own, there are many websites designed specifically to help you compare your credit card options and find the card that’s best for you. Nerdwallet and Bankrate They are two of the most popular here in the United States.
Step 4: Understand what you are signing up for
When you apply for a credit card, you give the credit card company permission to perform a credit pull (or inquiry) to evaluate your credit history. Too many difficult queries in a short period of time can have a negative impact on your credit score, so you want to limit the number of requests you send. Find the card that meets most of your requirements and apply for it first; If you are denied, then you may consider applying for a different card.
It’s also important to note that each credit card comes with its own unique set of terms and conditions, which you should review carefully before submitting your application or ultimately signing up for a card. Even two different cards offered by the same company may have different contract terms, so never make assumptions.
Some of the most important terms and conditions to keep in mind include:
- APR
- Any fees you are expected to pay
- The credit limit
- Promotional terms (such as low introductory rates)
- Rewards programs
- Payment options
- Fraud protection
Step 5. Complete the application
Once you are sure that a particular card is right for you, you should go ahead and apply for the card online. This quick process will tell you whether or not you’ll qualify for the card and what you can expect your interest rate to be, and it’s based on information found in your credit score. Requires a gentle pull (or query), which will not affect your credit score.
If you are pre-approved, you can proceed to complete the application. You can usually do this online, although occasionally you may choose to do this in person at a bank or by sending an application form by post. As mentioned above, this will trigger a heavy credit pull which may have a small impact on your credit score.
While the information you will need to complete the application may vary slightly from lender to lender, you will generally need to provide your:
If you submit the application virtually, you can often receive a response immediately. If you are approved and agree to the card terms, you will typically receive your physical card within two weeks. If you are denied, there may be steps you can take to improve your credit score and try again in the future.
Once you have your credit card, your next step should be to continually practice good credit habits. Do your best to avoid carrying a balance from one period to the next to avoid interest charges. Never spend more than you can afford. And build and rely on an emergency savings fund for emergencies instead of credit cards. Finally, don’t close your old credit card accounts unless absolutely necessary, as this can negatively affect your credit score.
