Best First Credit Card To Build Your Credit Score in 2016?

Q: Hey CreditCardGuru, I’m in my early 20s and have been reading your site since I found it last week. I need to build my credit score so I can eventually buy a house. The problem is, I’ve never had a credit card before and have no other history. What is a good first credit card to apply for?

A: It’s a good thing you’re asking this question before you apply. Why? Because every time you apply for credit (whether it be a card, loan, or even a new cell phone account) the lender has to pull your credit report. And every time a lender does that, it’s called a “credit inquiry” and that is saved on your credit report.

These inquiries can negatively affect your credit score. They stay on your report for two full years, but luckily it’s only during the first 12 months that they can affect your FICO score. Having one or two inquiries active in your file isn’t a huge deal but you don’t want to have a lot of them at once, as that would make you look like you were desperate for credit and that can scare future lenders.

The lesson? You should never apply for a credit card unless you honestly believe you have a reasonable probability for qualifying. If you think it’s a long shot it is probably best not to have an additional credit inquiry on your report.

For that reason, your best bet is to use this tool to find out exactly which card offers may be appropriate for you. Give that a whirl, it only takes a minute to check it.

That said, the best first credit card for you is … well, that isn’t an easy answer because it depends on your circumstances. You will fall into one of these two groups…

Group #1: Little to no credit history and not a student

Does this describe you? If so, keep reading!

Someone who has no credit history is sometimes in a better position to get approved for their first credit card. Why? That’s because you have a pristine record and banks are typically more willing to assign less to you vs. someone who has stumbled and has some bad marks on their credit report.

But with so many credit cards available which one should you try for first? Which ones are most likely to approve you? Here are some pointers:

  • The best flavor is plain vanilla. Sorry to break the news to you, but it would be best to forgo the coolest and most lucrative rewards cards for now. Those require an established and solid credit. Your best bet is to start with an unexciting credit card.
  • Avoid fee-harvester cards. There are some dubious banks like First Premier which will give a card to anybody, but they come with outrageous fees of up to $150 for the first year and pathetic credit lines. Stay far, far away from those types of cards unless you have no other options (and there should always be other better options).
  • Choose a big bank. I’m talking about one of the top 10 (like Chase, Barcalys or Capital One). This isn’t necessary, but I recommend it because the bank will have instant name recognition from coast to coast. Think about it … if you opened up a card with some local bank in Michigan and then moved to California when you apply for a mortgage and the loan analyst pulls your report he won’t have a clue whether that local bank is good or bad. On the other hand, if you have an account on there from a known bank, anyone reviewing your credit file will instantly recognize it and be familiar with their reputation. That said, sometimes you can get a good deal on cards from local credit unions. Still, as soon as possible it’s good to get on board with the big guys.

Group #2: Enrolled college students

If you’re enrolled at an accredited four year college or university you’ll be eligible to apply for a student credit card if you can get an over-21 adult to co-sign (or demonstrate you have sufficient income to cover your credit line in case you max out your card). That’s excellent news because these are the best first credit cards for three reasons:

  • Relaxed requirements. These cards are specifically designed for college students who have don’t have a credit history.
  • Rewards comparable to regular non-student consumer credit cards. Some like the Discover it card have the same reward programs on both the consumer and student versions.
  • No annual fee. Everyone knows students are usually tight on funds. Credit card companies realize this, which is why almost all student cards come with no annual fee.

One note though about Discover … their cards are awesome (generous rewards, U.S.-based customer service) but the downside is that they have stricter requirements for approval. However their student version (above) is an exception to that rule as it is pretty easy to get approved for. I have heard from people who applied for one as their first credit card and got approved even with a limited history. So I would say they’re the best choice for your first credit card if you’re a student.

For both groups: how to build your credit score?

The first step is to open a credit card account. Below are some tried and true strategies for boosting your score after that.

1. Manage your first card responsibly. Remember the blank slate thing? Once you run afoul of the rules with your card issuer your infractions will stay on your credit report for years to come. So, you need to be extremely diligent when it comes to managing your account. ALWAYS pay early the full amount on your bill. NEVER exceed 30% percent of your credit limit. The reason for this is because the percentage you use can harm your credit score.

2. Apply for a second (and maybe even a third) card in a few months. For the first six months, I would advise against opening more credit cards. But after you have a solid six months or so of account history, I would apply for a comparable entry-level card from a reputable bank. I’ve heard – although it’s rare – of people getting good reward cards like the Chase Freedom around this time, albeit with a $500 credit limit. And sometimes they were rejected when they applied, but they called up customer service and were able to change the denial into an approval. A card like that may be worth a try, but remember the warning about excessive credit inquiries.

3.  Apply for another card that requires even better credit. By now you should have two to three credit cards, ranging from entry-level to *maybe* a mid-tier like the Freedom if you’re lucky. Approximately 12 to 18 months after your first credit card was opened you can take it a step further and apply for something even better, such as an American Express or Chase Sapphire card. Hopefully, doing so will come with a credit limit that’s higher than your existing cards. From my experience, the easiest way to get higher credit limits is to apply for a new card rather than asking for a limit increase. It’s also no hit to your credit when the bank proactively raises your line but when you request an increase they usually will do another credit inquiry.

After doing all this, your credit score should definitely be on a steep climb! But to qualify for a mortgage at the most favorable rates, you will need to continue to build up your history. That will include adding installment loans (such as a car loan or student loan) to your credit report. Why? Because FICO likes to see a mix of different kinds of accounts. That means cards as well as loans.
This post was written or last updated January 5, 2016

 
Comments
The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

thanks! got the capital one quicksilver card with no credit history- $300 limit for now.

Great info. Thank you very much!

Hey! This really helped. Thanks a lot!