What to Consider When Choosing Your First Credit Card
Choosing your first credit card is exciting! It's a powerful payment option that gives you a personal line of credit to make purchases. Smart credit decisions can also mean benefits for years to come. While credit cards are a great first step into the world of borrowing, and can be an important tool on your path to financial wellness, it's important to be mindful of the risks. Here's how to pick the card that best fits your specific needs.
Know Your Income and Debt Situation
When applying for a credit card, you'll first have to go through a credit check, which will look at your income, credit score, and debt history. A stable income is important when getting your first credit card, because it shows that you will be able to make reliable payments, and a good credit history provides lenders with evidence that you can successfully manage debt.
If you've recently graduated, it's common to not have much credit history. Credit cards can be a good tool for building healthy credit. If you haven't established credit yet, a Key Secured Credit Card® is an option. Because it's secured by a deposit, it's easier to get when you don't have an established credit history. A secured card can also help if you need to rebuild your credit.1
A credit card, or a card with a lower interest rate and 0% introductory period, could also help you pay down higher interest debt. But making timely payments and paying off your balance each month is especially important if you want to successfully reduce your debt without racking up interest and build your credit score back up.
Calculate How Much You Can Afford
Knowing your take-home income is beneficial because it helps you understand what balance you can comfortably afford to pay off. Take a look at your income, your monthly expenses, and what you would use a credit card for.
You may also want to consider your credit utilization rate, or what portion of your credit limit you plan to use each month. Credit scores are partially determined by your credit utilization rate, but just how much depends on the card you get. It's important to assess your confidence in your financial situation to help determine how much credit you can afford.
Look at Credit Card Fees
Some credit cards may have annual fees. When looking at credit card terms, remember to pay attention to fees and how they will affect your plans.
Some credit cards have no annual fee, such as the KeyBank Latitude® card. These cards may be a good choice if you're trying to pay off higher interest debts. They also make for good emergency cards. Additionally, you can avoid certain fees, such as late fees, by making sure to pay at least your minimum amount by your due date each month.
Check Out Credit Card Rewards
Many credit cards offer rewards or bonuses, which can vary. Some provide cash rewards, while others let you earn benefits as you use the card. It’s a good idea to review the different types of rewards available and understand how they work. For example, the Key Cashback® credit card lets you earn cashback on purchases, which can be redeemed as a statement credit or deposited into an eligible KeyBank account. Keep in mind that some rewards programs are designed to align with different spending habits or cardholder needs.
Compare Interest Rates
The credit card interest rate is applied to the remaining balance after each payment period. It's another important factor you consider when comparing credit cards. You can do this easily by looking at the APR (annual percentage rate), which combines interest for a card into a yearly rate.
Ideally, you should try to pay your full balance each month to avoid being charged interest, but if you're unable to, be sure to pay off as much as possible to limit the interest.
Compare and contrast different kinds of credit cards before committing to one. You'll want to make sure you're choosing the card that best fits your needs and aligns with your financial wellness goals.