I'm setting it up and got a little confused, had to go into it three times. If you're iTunes account is set up with PayPal, you'll need to change it to a credit card. It wasn't obvious, but eventually I figured it out. Go to iTunes/Store on your computer and update the payment method Guessing that others might hit this stumbling block.
i dropped my credit card yrs ago and added an itunes card incase the account got hacked or my kids tried to download an expensive game. Then that way they could take so much since i usually only keep $20 on the account.