Choosing your first credit card is a major decision not one be taken lightly. Your credit history has a huge impact on your ability to rent an apartment, buy a house, get a car loan, or even land a job. How you use a credit card can make the difference between starting your credit history off on the right foot or making a bad first impression.
Best Cards for First Time Applicants
As a new credit card customer, your options will be more limited than someone with an established credit history. Here are tips to determine which type of card is best for you.
- Student Cards: Designed with college students in mind, these cards offer fewer perks and tend to have low credit limits. If you’re under 21, you will likely need a co-signer, a requirement since the Credit CARD Act was signed in 2009. If you don't have a co-signer, be prepared to show you’ll be able to cover your monthly bills.
- Secured Credit Card: This type of card helps people who have no credit history at all and would have trouble getting approved for an unsecured card. Secured cards require you to set aside money in a bank account that is then used as collateral against any charges you make. For this reason, a secured card isn’t ideal, but may be a place to begin.
- Store Cards: Credit cards tied to a retailer are known for low approval standards, so you might be able to get one, even if you have a limited credit history. Some of these cards are good only in the store that issues them, though, so you may be severely restricted in when, where, and how you use them.
What to Keep in Mind
Finding the right card will take some legwork. Do your research and keep the following points in mind as you consider signing up for a card:
- Ease of approval: With a little or no credit history, you may not get approved for the first traditional, unsecured card you come across. While you may have better luck getting a credit card for college students, a secured card, or a store card, be prepared for rejection.
- Future prospects: Chances are that your first card will come with some unfavorable terms. There’s likely to be a fee attached, interest rates will probably be very high, and the terms and limits will be restrictive. After about a year of paying your bill on time and staying within your credit limit, you should be able to qualify for a card with better terms. So, keep your eye out for current credit card deals when your first year is about to wrap up.
- Low limits: You don’t need a credit limit of several thousand dollars on your first card. Something in the $500 to $1,000 range is probably plenty. It’s low enough to keep you from getting into serious debt. Make a few purchases and pay off the balance in full each month to prevent interest from accumulating and establish a pattern of good credit behavior.
What to Avoid
The consequences of choosing the wrong card can be unpleasant if you end up with one that has one or more of the following qualities:
- Excessively high fees: Most credit cards available to people with little or no credit history will come with some sort of fee attached, but don’t let yourself get price gouged. An annual fee of more than $40 is probably too much.
- Excessively high interest rates: Interest rates on cards for new credit card owners are higher because they’re seen as high default risks. Fortunately, you can find a card with a reasonable rate just as easily as you can find one with a reasonable fee. Percents in the high teens to low 20s is the usual range for an annual percentage rate (APR) - avoid anything much higher than that.
- Cards that don’t report to credit agencies: The goal of any first time credit card owner should be establishing a good reputation. You can’t do that if the company that issues your card isn’t reporting your credit-card activity to the credit bureaus. Make sure this is the case.
The most important part of choosing your first credit card is doing your research. While you may think you want certain perks, such as travel rewards, you may never use them or you may find that some rewards programs aren’t available to first-timers. You’ll have more options the next time, after you get used to practicing good credit behavior with your first card.