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Millennials are too often criticised for not being prepared when it comes to money, despite being dealt a tough hand. With sky-high student loan debts and eye-watering house prices, making a strong start at managing personal finances is more important then ever. But the fact that you’re reading this means you’re already ahead of the curve.
When you’re younger, it’s unlikely that you’ll have much of a credit history – which is what lenders normally use to evaluate credit card applications. Our guide looks at what you can do about it and what your options are.
It really depends on your personal circumstances. First of all, keep in mind that if you’re under 21, you can only obtain a credit card if you have your own independent source of income – typically, if you’re employed or receiving a student loan. If that isn’t the case, you won’t be able to get one in any case.
Secondly, if you’re completely new to banking and have never, for example, had a current account, you should probably start from there. A regular current account with a debit card and overdraft facility will usually cover most of your financial needs.
If, instead, you do already have some financial expertise and are either looking at getting some extra flexibility for paying your purchases, or if you want to get an early start at building your credit score, a responsibly-used credit card could be a good idea.
Be practical and realistic. Don’t expect to get super-premium gold, platinum or black cards or the longest 0% interest deals – it’s unlikely you’ll get approved. The best offers on the market are restricted to those with established, excellent credit records.
This may be the first time you’re trying to borrow money in any form. Your credit report could be a white sheet, meaning lenders would consider you a high-risk borrower because they have no way of knowing whether you’re the kind of person who usually pays off their debts on time.
For this reason, if you do get a credit card, you’ll probably be offered a low credit limit and possibly a higher interest rate. If you use the card correctly, it’s no big deal: as long as you clear your balance in full every month, you won’t be charged any interest at all. However, if you don’t, a credit card can quickly become a very expensive way of borrowing money.
Depending on your personal and financial circumstances, here are some options you may be interested in as a young adult.
Comparing financial products is never easy (otherwise here at Finder we’d all be unemployed!), especially when your options are somewhat limited. However, if you do your homework in advance there’s no reason why you shouldn’t be able to pull it off.
You obviously won’t benefit from it right away, but improving your credit score should be an ongoing goal. Some of the things you can do, such as getting on the electoral register, are pretty straightforward. Head to the bad credit section of our website to learn more.
You may be tempted to just look for the best credit cards on the market, those with the best rewards perhaps. Don’t do that – you’ll waste loads of time and probably won’t get them anyway. Instead, think of why you need a credit card (to spread out some occasional expenses, improve your credit score, or both?) and prioritise the features that will give you most of what you need. Also, only browse cards that don’t demand an amazing credit history.
Credit cards have dozens of different features, but once you know what you need, you’ll also know which one to compare. As a rule of thumb, when you start with credit cards you should look for no annual fees and broad eligibility criteria. Interest rates may be higher than you expect and the credit limits will probably be low. If you opt for a student card, bear in mind that they’re usually tied to a student bank account meaning you have to have both with the same bank.
Once you think you’ve made a choice, don’t apply right away as full applications impact your credit score, albeit only slightly. Instead, most lenders allow you to check your eligibility first – you’ll be asked to fill in a short form with your details, and they’ll run a “soft check” that will tell you if your application is likely to be accepted, without appearing on your credit report.
If you haven’t skipped any of the previous steps, this one should be a piece of cake. Have all your personal and financial details ready and always provide accurate information. You can usually apply online and it shouldn’t take longer than 10-15 minutes.
Protect your credit score by setting up a direct debit to cover at least the minimum required payment each month. If you can, set it up to clear the full balance each month – that way you’ll usually avoid interest altogether.
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