Before applying for your first credit card, you need to know how credit cards work and what factors go into getting approved. Knowing these things will help you make a wise decision when choosing one of these financial instruments.
What is the age limit to apply for a credit card?
There’s no minimum age to apply for a credit card. But there is a maximum age: 75. If you’re applying for your first credit card and are over 18, you’re in luck! You’ll probably be approved for a card if you’ve already got excellent credit, your income is high enough, and your debt-to-income ratio isn’t too high. The average age of people applying for their first cards is 29.
According to SoFi, “The average credit card limit for Americans was $30,365 in 2020, according to a recent report by Experian. However, individual credit card limits can vary depending on a variety of factors and can be as low as $300. For instance, there’s variance in the average credit card limit by age, as well as by creditworthiness.”
How do credit cards work?
Credit cards are payment devices that allow you to make purchases with a line of credit. The credit card industry is based on the principle of revolving credit, which means that you can borrow money whenever and however much you want, as long as there is enough room on your account. Credit cards are also used to make online payments, over the phone or in person, depending on your card type. For example, when you use your credit card at a store or business, the transaction will be processed through a network called Visa.
What is a credit score?
Your credit score is a three-digit number that represents your creditworthiness. It’s calculated using information from your credit report and ranges from 300 to 850. The higher, the better—if you have a score of 700 or above, you’re considered to be in good standing when managing your finances.
Many factors go into determining the numbers on your report, but the most important ones include:
- Payment history
- Debt ratios
How do banks determine your credit limit?
When you apply for a credit card, the bank or credit union will look at your credit report to see whether or not you have a good payment history. If you do, they will determine how risky it is to lend money to you.
The amount of debt you have and the type of credit card (student loan, mortgage) can also factor into the equation. In general, having only one type of debt might be better than having multiple types because it shows that you’re paying off all your debts without issue.
Is it necessary to have a credit history before applying for a credit card?
The short answer is no; having a credit history before applying for a credit card is not necessary. But it’s important to understand credit history and how it works. Your credit history records your financial transactions with lenders, including your borrowing and repayment habits. Those records are used by creditors when deciding whether or not you’re eligible for loans and other financial products like mortgages and insurance policies—as well as whether they’ll approve you for those products.
The best thing to do is to start slow and work your way up as you gain experience and confidence. Be sure not to overspend on the card, so you don’t negatively affect your credit score.