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4 Things to Look For in Your First Credit Card

Christy Bieber, The Motley Fool

What should you look for when picking a credit card? Check out four key factors to consider.
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Woman looking at credit cards with confusion.

Picking a credit card is an important decision. The card you choose should help you to build a positive credit history, be affordable, and ideally even reward you for your spending.

It's especially important that your very first credit card is a good one. You may not have much of a credit history before you get your first card, so it will likely have an outsized impact on your credit until you have more accounts on your record.

But while it's important to pick the right credit card, it's not always easy to know what the right card is. To help you make a smart choice, here are four things to look for.

1. Low eligibility requirements

If you're getting a credit card for the very first time, you may not have a long credit history or a track record of on-time payments. That means you may not have a very high credit score -- and some credit card issuers may be unwilling to approve you for a card.

You don't want to be rejected for a credit card, as you'll be left with a hard inquiry on your credit report and nothing to show for it. Too many hard inquiries will reduce your credit score, and each inquiry stays on your report for up to two years.

Look for a card that caters to customers who are new to borrowing. This could be a student card, a secured card, or any other card marketed as helping to build credit.

Watch out, though, as some of these cards have high fees and interest rates. You'll want to find one that doesn't. You should also be prepared for the fact that secured cards require you to make a cash deposit as collateral, so you may need to tie up some of your money to get the card.

2. No fees or low fees

Some credit cards charge a variety of fees that could include annual fees, late fees, over-the-limit fees, and foreign transaction fees when you use your card abroad.

Late fees and over-the-limit fees are easy to avoid by simply following your cardholder agreement. However, they can still be a concern if you make a mistake as a first-time cardholder. Annual fees, on the other hand, are charged every year you have the card no matter what.

Many cards with annual fees come with extra perks, such as generous rewards programs and access to airline lounges. Still, as a first-time cardholder you may not spend enough to earn sufficient rewards to make up for the fee -- and you may not know what perks you'll actually use.

Until you're more familiar with credit card rewards and plan to charge a fair amount on your card, it often makes sense to opt for a card with no annual fee and minimal other fees so you can avoid big unexpected charges.

3. A reasonable APR

APR stands for annual percentage rate. It's the cost of borrowing, taking into account not only your interest rate but also any fees you pay.

The APR on most credit cards can be pretty high. It's common to see rates upward of 15% or 20%. That's significantly higher than the rate on other kinds of debt, such as student loans, mortgage loans, and most personal loans.

Because the APR is so high on credit cards, it's always best to avoid carrying a balance from month to month. Sometimes, though, new cardholders do end up paying interest for a time. If you think there's a possibility you will ever carry a balance, then finding the lowest-APR card possible is very important. The interest you pay will far outweigh the rewards that even the most generous card provides, so focus on keeping your APR low if you'll end up paying it.

4. A rewards program you'll actually take advantage of

Rewards programs are one of the best things about credit cards. When you earn rewards, you get cash back, miles, or points for spending -- so you can end up with free vacations or have some of your money coming back to you.

Unfortunately, studies have shown many people don't end up redeeming their rewards, so make sure the card you get has rewards you're excited about. Don't get a card that gives you miles if you never travel, for example.

Some rewards programs also give you extra bonus points or cash back for certain kinds of spending. For example, some cards provide 3% cash back on gas and groceries and 1% back on all other purchases, while others provide 2% cash back on everything or 5% cash back on rotating categories that change every quarter.

Your card should be well-matched to your spending. If you spend most of your money at the grocery store, pick a card that provides bonus rewards for these purchases -- but if your spare cash all goes to gas and travel, then opt for a card that rewards that spending instead.

Pick the right first credit card to meet your needs

Now you know some of the key considerations when you're shopping for a credit card. With this information in mind, you can compare different credit cards and pick one that's a great fit for you.

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