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Many banks were forced to tighten their lending requirements during the height of the pandemic, which included reducing consumer approval for new credit cards. But a year later, a lot has changed: Credit card creations have nearly doubled to record highs, from 8.6 million in the second quarter of 2020 to 19.3 million in the second quarter of 2021, according to the report. Quarterly Credit Industry Information Report (CIIR) from the TransUnion credit bureau in the third quarter of 2021.
The report also found that the younger generation of consumers, Gen Z, is driving the rebound in the credit card industry with the biggest jump in credit card issuance.
“As many of these consumers come of age, they find that they need products like credit cards,” said Paul Siegfried, executive vice president and business leader of credit cards at TransUnion. “Part of this growth is due to the natural aging of the generation as more and more consumers enter it, but too many of these consumers re-engage in the economy and use credit products. to do it.”
Getting your first credit card is a crucial step in your financial journey because it means you are starting to build credit. However, it is important that you treat this move with as much care and consideration as you would any other financial decision you make. New credit card holders need to know why they are signing up and how using a credit card can help or hurt their finances.
Below, Leslie Tayne, a debt relief lawyer at Tayne Law Group, shares three tips that Gen Z consumers should know when opening a new credit card account.
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1. Decide what type of rewards program you want
Credit cards offer all types of rewards which is a huge advantage of using one as opposed to relying solely on a debit card. Credit card users can earn cash or earn points and miles every time they make a purchase with their card. While all of this might sound exciting, some rewards programs may be better for you than others.
For example, if you don’t travel often, it doesn’t make sense to get a credit card that allows you to earn miles with your spending. Instead, you might want to go for a cash back card or one that offers points for your purchases (just make sure you understand how to redeem them).
You’ll find that many of the best rewards credit cards require you to have good or great credit, which younger consumers usually don’t have since they’re just getting started. A good starter card for those with only medium credit is the Capital One QuicksilverOne Cash Rewards credit card, which offers a lump sum cash back of 1.5% on all your purchases.
And if you’re a student, Tayne recommends considering student credit cards. “The rewards and benefits offered on student cards can be great and comparable to standard credit cards,” she adds.
The Discover it® Student Cash Back has no annual fee and offers students enrolled in two- or four-year college the opportunity to accumulate credits while earning rewards. You must be over 18 and be a U.S. citizen to apply. Cardholders can enroll quarterly to earn 5% cash back on rotating categories (like Amazon.com, gas stations or restaurants), up to a maximum of $ 1,500 each quarter (then 1%). All other purchases automatically generate unlimited 1% cash back.
2. Check the terms and conditions
As someone who is new to the world of credit, Tayne suggests that young consumers carefully examine all of the fine print on the card they are considering purchasing.
“At a minimum, they must know the interest rate and fee structure, ”says Tayne. “That way they understand how much it could cost them to use the card. “
All credit cards will have an online “rates and terms” page that lists fee information, so you can look there before you apply for the card. You will find the interest rate expressed as an annual percentage rate at term, or APR. Card issuers charge interest if you keep a balance from month to month, so pay your balance in full (and on time) every bill cycle to avoid accruing interest.
And if you’re worried about paying your credit card bill on time, consider a credit card with no late fees, like the Citi Simplicity® Card, Apple Card, or Visa® Petal® 2 “Cash Back, No Fees”. ” Menu.
3. Aim to build credit
Tayne points out that many Gen Z consumers can use credit cards to fund post-pandemic celebrations, like buying event tickets and booking travel. But young consumers must above all take out their first credit card with one goal in mind: build credit.
The earlier you start building a credit history, the better your long-term credit score will be. And a good credit rating goes a long way. It can help you get financing in the future, like a car loan and possibly a mortgage.
As you get older you can sign up for credit cards for a little more fun, like earning a big welcome bonus, but your first credit card should be used as a tool to start your credit journey. For this reason, use some of the tips below from Tayne to instill good habits from the start:
- Spend according to your budget to be able to pay off your card every month: This way, you won’t get into debt and you will avoid paying high double-digit interest rates.
- Keep an eye on your credit report and credit score: Your credit score will give you a quick overview of your financial situation, and your credit report can help you spot potentially fraudulent activity, such as open credit accounts in your name.
- Manage your credit card responsibly over the long term: The longer your credit history, the better your credit score.
At the end of the line
Congratulations to you if you are thinking about signing up for your first credit card. Since this card is of great importance to your current and future financial health, make sure you take the time to choose the rewards program that’s right for you, look at the fine print (ahem, fees) and aim to build credit. from the start. .
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For prices and fees for Discover it® Student Cash Back, click here.
Petal 2 Visa credit card issued by WebBank, FDIC member.
Capital One QuicksilverOne Cash Rewards Credit Card and Apple Card information was independently collected by Select and was not reviewed or provided by the card issuer prior to posting.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.