Once, I was coming home from a trip and walking through the airport. There was an airline sales rep handing out applications for the carrier’s credit card. I was really annoyed and about to walk away until I noticed two young college students in the crowd. I was sure they didn’t know that 10 percent of their FICO score was related to credit inquiries. They didn’t know that as soon as they filled out that credit card application, their FICO score would immediately decrease.

I walked over to the two young men and whispered to them, “Did you know that as soon as you fill out this information your credit score is going to go down? I know you don’t know me from Adam, but I just couldn’t help not coming over here and letting you both know.”

The two young men looked at me as if I was crazy at first, but after I showed them my business card, they listened to what I had to say. As I was speaking to the two young men, a few others joined in and there was a lively discussion, albeit under our breaths so that the airline rep didn’t hear us. It was quite a funny spectacle!

Many people believe that obtaining a credit card is as simple as filling out an application and don’t do any further research.  Because credit cards can become a major part of your budget and are so dangerous if used inappropriately, each decision to apply for a credit card should be deliberate and done with tremendous care. Below is what I feel are the most important things to keep in mind while selecting a credit card.

Whichever card you choose, do NOT use this card for everyday use.  When you get a card, store it in a safe place in your home, where you are not tempted to utilize it frequently.  The purpose of this credit card will be twofold:


  • To establish a credit history

  • To give you extra protection in case of an emergency


Establishing a good credit history helps lenders to establish clear evidence that you are financially responsible, which increases your ability to purchase a home, car, or many other things that are necessary in life.  With number one, you want to be extremely careful. NEVER spend money, outside of an emergency, that you can’t reimburse immediately.  If you want to purchase a book, and want to use your card to establish a credit history, don’t buy the book if you don’t have the funds to immediately pay off the bill.  When I use my credit card, I charge whatever item I use, then pay off my credit card no later than the following day I. If you can’t do that, then you do without the item (unless it is a serious NEED such as food, water, lodging, or clothing).


Number two, make sure you are able to get a sufficient line of credit.  Ideally, the credit limit of the card should be able to cover at least three months of expenses barring an emergency.  This card as an emergency fund should not replace your personal building of an emergency fund. (You ought to be saving on your own to establish 6 months of living expenses.)  Save, and use the card to subsidize whatever amount of emergency fund you have left to establish.


Quick Tip: If you are not eligible to receive a credit card because of poor or no credit history, you could apply for a secured card. This is a card that is linked to a savings account that may be claimed by the bank if you fail to make the necessary payments.  This arrangement of providing collateral “secures” the loan and allows the bank to take on riskier clients. With a secured card, you give the bank a certain amount of capital to hold as collateral and the bank then gives you a line of credit for the amount that you have provided. You can then use your card as you would any normal credit card and will help you to establish a credit history.  Go to www.bankrate.com and seek out the best secured cards with no fees and good rates.


Here are a few tips when looking at the services of various cards.

  1. Make sure there are no hidden fees for having the card.
  2. Check the interest rate.  If you have a decent credit history, you should be able to get an introductory rate below 10%.  This rate typically lasts for 6 months to a year. You might even be able to get a 0% rate for this period.  FICO score is a key number in this situation. If your score is above 750, then you should be able to get an excellent rate.  If it is below 750, you might benefit from getting your score above 750, and then apply for a card. You will be able to demand lower rates with such a high score, and will really be in the driver’s seat.
  3. Figure out how they calculate the minimum due. Cards calculate the minimum due by charging around 1.5% to 2.5% of the outstanding balance.  The lower the number, the less you have to pay back per month. This can make a difference if you need the cash.  However, the less you have to pay off, the more interest is allowed to build up. So I strongly urge that you always pay off more than the minimum due when you can.
  4. Pay on time!
  5. Look out for mistakes.  Many times credit cards double charge you for items purchased, may fail to record a payment, or may charge too much interest on your balance.

More financial literacy articles from Ryan Mack

Marriage and Money Part 1

Marriage and Money Part 2

Marriage and Money Part 3