Securing your first credit card marks a significant financial milestone, offering both convenience and potential rewards. However, misuse risks accumulating debt, incurring fees, and causing lasting damage to your credit standing.
Consequently, a clear understanding of how credit cards function is crucial before applying.
Craig Tebbutt, chief strategy and innovation officer and financial health expert at Equifax UK, provided essential insights to help individuals make informed, confident choices with their inaugural card.
What is a credit card?
“A credit card, first and foremost, is a flexible form of credit to a certain limit,” explains Tebbutt. “Cards get issued, and you get your interest rate and your spending limit applied. You can accrue that debt, and you can pay [it] off either [with] monthly payments or all in one go.”
What is a credit score?
A credit score is a three-digit number, typically between 300 and 850, designed to represent your credit risk or the likelihood you will pay your bills on time, according to Equifax UK’s website.
“A credit score is an indication of the information that is on your credit report,” explains Tebbutt.”It gives you an indication of how lenders may then interpret that credit information when granting credit for a credit card.”
You can get a detailed view of your credit report and credit score out of 1,000 on Equifax UK’s website.
“Within that service there’s also a detailed FAQs section which can help you understand what the things on your credit card and credit file may mean, how to interpret your credit score, and also how to improve your credit score as well,” says Tebbutt.
What are the benefits of having a credit card?
“When used responsibly, a credit card can be a really practical and convenient way to make purchases and can give you access to credit on an ongoing basis,” says Tebbutt. “Credit cards can have a variety of benefits, from air miles to discounts.”
Regular spending and repaying on a credit card is a really good way to build up your credit history.
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“If you can prove to lenders that you’re responsible with credit, you can unlock finance in the future and get the credit that you deserve,” says Tebbutt. “If you take a credit card out and act responsibly as a borrower and pay that back regularly, when you then come to that first step on property ladder, you have already proven that good credit history.”
What should you look at when comparing credit cards?
“There’s lots of things to consider when you’re choosing your first credit card, such as interest rates, credit limits, any fees and charges or bonus schemes,” says Tebbutt. “It’s really important to consider what you’re using the credit card for, and then make the decision on the deal that best suits you.”
There are plenty of credit comparison tool sites to help you make this decision.
“We offer a comparison tool at Equifax which will enable you to look across the market of credit cards, but there are other comparison tools out there as well,” says Tebbutt. “If I was talking to my daughter, I would advise her to look across the market, look at the various introduction rates and offers, and to find the product that’s best suited to her needs.”
What age should people get their first credit card?
To apply for a credit card in the UK (including Northern Ireland), you must be over 18 and a resident. However, your financial circumstances matter more than your age.
“There’s not a right or wrong age over 18 to get a credit card,” says Tebbutt. “I think what’s more important is whether you’re in a position to make the repayments on time and able to utilise a credit card responsibly.”
What are some common mistakes people make when they get their first credit card?
“I think one of the easiest mistakes to make is to miss that first payment,” says Tebbutt. “You need to make sure you remember when that first payment is coming out, so maybe consider setting up a direct debit to make those regular payments.”
Another common mistake is making the minimum monthly payment when you can afford more.
“If you only make the minimum payment and if it’s an interest accruing credit card, it will then only continue to build up the balance of that card,” explains Tebbutt. “So, if you’re financially able, making above the minimum payment is preferable.”
He also advises first-time credit card users to avoid withdrawing cash from an ATM with a credit card.
“Be mindful of withdrawing cash out from an ATM with a credit card, as that can impact how lenders view you using credit,” says Tebbutt. “I would advise to avoid that if you can, because that can impact your credit file.”
What should people do if they miss a payment or are struggling to afford the credit they have?
“If for any reason you miss a payment or suddenly find that you’re struggling to afford the credit you’ve got, it’s really important that you speak to the lender,” says Tebbutt. “As human beings, sometimes when things go wrong we don’t want to talk about it, but you really do need to talk about this.
“In many cases, lenders will work with you to provide relief options and will provide options for repayment and will be keen to work with you to help you resolve the situation.
“Also, make sure you keep looking at your credit file as well to gain an understanding of how that’s reflecting on your credit file and your credit score.”
