If you’re new to the wonderful world of credit cards you know that it be rather intimidating. There is such a plethora of options that figuring out which one is best for you can be like trying to pick a major in college. Let’s talk about which cards are good for those just starting out … and which ones are best avoided!
Which cards are designed for no credit history?
For starters, you will most likely be limited to the easy-to-get credit cards (i.e. those for average credit, students or possibly secured cards) on the market. That means you can probably forget about those 5 percent cash back and double mile deals out there (those require a more established history). The best credit cards for beginners will be those which are entry level or for college students because they are designed for those with little credit history. Student cards require proof of enrollment in an accredited college or university, just fyi.
The best for beginners…
… will fall under one of the following three categories. Click on the links to see my updated recommendations 2015:
- If you are currently enrolled in college then you will want to go for student credit cards! These are easy to qualify for if you are a student. If you’re not a student you will not be approved, as their requirements involve enrollment verification. If you get a student card while you are in college, you will still be able to keep the account open after you graduate and your credit limit can grow to suit your post-college needs. It’s a good idea to keep this card forever, actually since the length of your credit history will always be pegged to the date it was first opened. This card is one the most popular one on the market right now
- If you have no/limited credit history then what you want are credit cards for “fair” credit scores. I’m talking about entry-level unsecured cards (not secured by security deposit). There are not many banks that offer them, but here are a few good ones I recommend. Their annual fees are low and reasonable. Most beginners will fall under this category.
- If you are afraid you will overspend and get in over your head with your first credit card then I highly recommend you start out using a credit card with a security deposit. Secured credit cards only give you a credit line up to the amount you have on deposit with the issuing bank – i.e., $300 deposit = $300 spending power. This ensures you won’t go overboard and get yourself in trouble. Secured cards can also be a good way to test the waters if you worry that plastic will make you feel like a kid in a candy shop (kind of like the overly excited guy in the above stock photo).
Whatever road you end up going down, something to keep in mind in that credit cards in and of themselves are neither bad nor good. They’re simply a financial tool. How responsibly you handle that tool can result in convenience and positive credit history or debt and bad credit. It’s your choice.
What you do not know about carrying a balance…
It’s fairly common knowledge that it’s ill-advised to carry a balance on your new card, right? But let me explain why, because most credit novices don’t understand how interest charges work…
If you pay your bill in full each month you will not be charged interest. A billing cycle is 30 days long. After that, a billing statement is generated and there will be at least 21 days (known as a grace period) for you to make your payment and avoid interest charges.
If you don’t pay off your balance in full, you will be in for a big surprise. Why? Because if you carry any balance past the grace period, you will be charged interest on those purchases going back all the way to the original transaction dates!
So let’s say you made just one purchase and that was on the first day of the billing cycle. After that cycle closes (30 days later) you only make the minimum payment during the 21 grace period. Then just five days after the grace period ends you decide to pay off the full amount.
Guess what happens? You will owe a lot more than just five days of interest!
You will be charged interest on the amount for the 30 days in the billing cycle + the 21 days in the grace period + the 5 days after that. That’s a jaw-dropping 56 days of finance charges!
Most people starting out don’t realize this… interest starts on the day of purchase, not the payment due date. However, you can avoid that if you pay in full before the statement due date.
Ultimately, you are the one responsible for using credit cards in a responsible fashion – which means not using too much of your credit line (preferably under 30%) and always, always paying on time. And, if you do carry a balance from month to month don’t even think about getting a rewards card. Why? Because, it will charge higher interest, the interest you will be paying will more than offset the value of the rewards and a rewards card induce you to spend even more than you would with a non-rewards card. The best credit card for beginners will be whatever type they can handle, so there’s no one-size-fits-all answer. Remember, as long as you play by all the rules (as contained in your cardmember agreement) you will be establishing a positive credit history, building a solid credit score and positioning yourself for bigger and better credit opportunities in the future.
Written or last updated February 15, 2016