Getting your first credit card

Here’s everything you need to know

If you’ve never had a credit card before, it can be tricky to know where to start. 

There are loads of cards to choose from and a whole load of jargon to try to get your head around. Plus, if you get things wrong, you could end up in financial trouble. 

But don’t worry, we’ll take it slow.

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What is a credit card?

A credit card lets you borrow money to pay for things and pay it back each month with interest (in most cases). It looks like a debit card, but you’ll be using credit instead of money from your bank account. Essentially, every time you spend on your credit card you’re taking on debt. 

How do credit cards work?

Each month your spend is totted up and you’re sent a statement. This will show you how much you owe, the interest, the minimum required payment and the date you need to pay it. 

You can choose to clear your balance every month or make at least the minimum repayment, which you’ll see on your monthly statement. 

However, the smaller the repayment, the longer it’ll take to clear the balance and the more you’ll pay in interest. 

Though you can get credit cards from a number of different banks, they’ll be issued by either Visa, Mastercard or American Express.

Why should I get a credit card?

Credit cards can be really useful in lots of different ways. People tend to use them because:

They help you to build your credit score

Your credit score, also known as your credit rating, is a number which suggests how reliable you are paying back money. It’s based on how you’ve handled borrowing in the past and it can affect how you can borrow in the future. 

Bizarrely, using a credit card can demonstrate that you are able to responsibly use credit, boosting your score. Using it regularly and paying it off will help you do this.

A good credit score not only makes it more likely you’ll be approved for loans, mortgages, phone contracts and overdrafts in the future but you may also be offered better rates and deals.

You don’t need a specialist credit card for this, and you might be eligible for some that offer extra features. However, there are also some ‘Credit Builder’ cards that could be a good place to start if you don’t have much of a credit history.

Be warned, they often charge a higher rate of interest than other credit cards and you’ll probably get a lower credit limit. Though if you’re just using the card on everyday expenses and paying it off completely each month that won’t be an issue.

As a general rule, you should use a credit card for everyday spending that you know you can afford, such as at the supermarket or filling up your car with petrol.

They allow you to spread the cost of large purchases

Since you don’t have to pay back the full amount owed straight away, you can push back paying for expensive items over several months with a credit card. 

However, that’s only really something you should consider in an emergency as it’ll be an expensive debt and interest will be added to whatever you borrow. 

It’s not all bad though. The best card in this case is a 0% balance transfer card. These give you a set period – say 12 or 24 months – where you don’t pay any interest. These allow you to clear the balance quicker and cheaper as no interest will apply.

They offer valuable payment protection

Section 75 of the Consumer Credit Act holds your credit card provider and retailer jointly responsible if something goes wrong with a purchase. For example, if the item you buy doesn’t show up or is poor quality, you can make a claim to your credit card company. 

The goods must cost between £100 and £30,000 but you’ll be covered even if you put £1 on your credit card.

They can offer rewards and bonuses 

This will depend on what card you get but you may be able to earn cashback, bonuses, Avios and other points when you spend. 

BUT, and it’s a big but, it shouldn’t be the main reason you get one and don’t be tempted to spend more on the card to earn more rewards. You’re taking on debt and you’re unlikely to break even.

First time credit card basics

If it’s your first time using a credit card, there are some important things to know.

Don’t go there if you struggle with debt

Credit cards are useful but they’re not essential. Having one could make things more difficult for you if you already find it hard to keep on top of your payments and aren’t sure if you’ll be able to manage another type of debt.

Pay back as much as you can each month

You’ll get sent your balance (how much you’ve spent) and the minimum repayment (how much you have to pay) each month in a statement with the date it needs to be paid. 

But you can pay more, and clearing your balance in full each month is the cheapest way to manage your credit card as you won’t be charged interest.

To keep on top of it, set up a direct debit each month. If you’re struggling to pay, contact your provider and see if it’ll offer you another arrangement.

Always clear at least the monthly minimum

If that’s not possible, try to pay as much as you can afford. Failing that, make sure you pay at least the minimum. If you don’t, you’ll be charged a late fee and you’ll get a negative mark on your credit score. 

Watch out for interest

The interest rate is a figure with the word APR at the end, which stands for Annual Percentage Rate. It’s essentially how much you’ll be charged on your balance if you don’t clear it completely each month. 

Though it’s not a good idea to get a credit card if you think you’ll be charged interest, keep an eye on it in case you do end up getting charged. 

It’s not as straightforward as picking a card with the lowest rate as only 51% of successful applicants get the one that’s advertised – so 49% could pay more.

Don’t go over your credit limit

This is the maximum amount you can borrow and is set by your provider. It’s usually based on factors like your income and credit history. If you go over your credit limit, the transaction could be approved or denied. 

If it does go through you could then be charged a penalty fee and it could damage your credit score. In fact, try and only use 30% of the credit available to you. This is known as ‘credit utilisation’. 

Sticking to around 30% shows lenders you’re in control and is better for your credit score. But, don’t spend what you can’t afford just to get to this level.

Avoid withdrawing cash on your credit card

You can use your credit card to take out money from an ATM but it’s expensive and it’s not great for your credit score. Lenders may view it as a sign you can’t manage your money because you may be withdrawing cash to pay for essentials. 

So just because you can withdraw money with your credit card, doesn’t mean you should.

You can’t pay all your bills with a credit card

Many bills, like council tax and energy bills, are best paid by direct debit – and you often won’t be able to use your credit card to pay for these as. 

However you may find that you can pay other regular payments, such as Netflix, Spotify, with your credit card.

It could take months to improve your credit score

Don’t expect results straight away – the longer you use your credit card and pay off the balance, the better for your credit score. There’s no hard and fast rule, but you should be able to see some improvement after about three months of using your credit card responsibly. 

It’s worth signing up for a free credit reference agency like Experian or Clearscore, to keep an eye on your score.

Who can get a credit card? 

Getting a card depends on a number of things. To apply, you’ll need to be at least 18 years old (in some cases 22 years old) and a resident in the UK. You’ll also be asked for your personal information such as your address and your income. 

The credit card provider will also check your credit file to see your credit history and how you’ve managed your finances in the past.

If you’ve never had a credit card or borrowed before, it doesn’t necessarily mean you won’t be approved for one now. But it could affect how big of a credit limit you get.

Are you eligible for a credit card?

Your best bet is to use an eligibility calculator before you apply. These conduct a soft credit check – so it won’t show up on your credit history – and will give you a sense of what the credit card provider will see and what cards you could get – and whether you’re likely to be accepted.

You could try this credit card eligibility calculator from MoneySavingExpert or this one from a comparison site like MoneySuperMarket.

Can I apply for a credit card if I’m rejected?

You can, but it’s not wise to do so immediately. If you make too many applications in too short a time, it’ll damage your credit score. It’s recommended you wait at least three months before trying again.

Instead, it’s worth speaking to the provider to find out why. You can then go back to the drawing board and remedy the problem before trying again.

Your credit card application could be rejected for a few reasons but it’ll most likely have something to do with your credit history, your financial situation (eg not earning enough or because you’re not in stable employment), the specific criteria of the card or problems on your application form.

If it’s your first credit card, the issue might be because you don’t have enough of a credit history.