7 options for your first credit card
A first credit card can be an exciting step and even the basis for future financial success, but you may have to knock on a few issuers before you find one.
As a beginner, your options are limited compared to applicants with longer credit histories and excellent credit scores, and rejection is not uncommon. It’s important to focus on the credit cards that are right for you.
The ideal starter card should save you money and report your payment history to everyone : TransUnion, Equifax and Experian. These companies record information used to calculate your credit scores, a necessary step in establishing your credit. If the card offers a way to upgrade to a better credit card in the future, that is also a plus.
Here are some potential options to consider for your first credit card.
When you cannot qualify for a credit card due to your income or limited credit history, a with a good credit score (of 690 or higher) can offer you one. Under this arrangement, you would appear as the account holder and appear on the invoice, but the debt will show up on both your credit reports and those of the co-signer who vouches for you. You and your co-signer are legally responsible for the debt.
. But it’s a serious favor to ask a friend or loved one, because that person will have to foot the bill if you can’t pay it. And if you miss payments, their credit can take a hit along with yours. A co-signer essentially puts their good credit history at risk to help you build your own.
If you find a willing co-signer, you can independently manage your credit card and have your name printed on it. You are responsible for managing the account and monitoring payments. The co-signer simply steps in if you can’t.
An alternative to co-signing is to ask someone with good credit to add you as a on their own. You still get a credit card in your name, but the primary cardholder has more control over the account since they are responsible for its management and direct payments. In this scenario, the primary cardholder is solely legally responsible for the debt. , but not at all.
When you can’t benefit from a traditional credit card, may be an option. They require an initial security deposit – usually a few hundred dollars – as security.
The amount you deposit determines your credit limit and reduces the risk for the issuer lending you a line of credit.
The deposit can present a hurdle for some, but unlike a deposit with an annual fee, you end up getting that money back when you switch to an unsecured credit card or close your account in good standing.
Most major card issuers assess creditworthiness based in part on the traditional method , which means first-time applicants with slim credit histories often don’t score high enough to be approved.
But in recent years, implemented new ways to assess creditworthiness beyond FICO scores and credit history. Some of these early stage issuers use their own non-traditional underwriting standards based on factors such as income, employment, and bank account information.
Otherwise, these products work like regular credit cards. You usually don’t have to pay a security deposit, they tend to have low fees and some of them even offer rewards.
Some student credit cards don’t require you to be a student, but just because you’re a student doesn’t mean you’ll be definitely approved for one.
Typically, these cards target 18-21 year olds, but those under 21 will need to be able to show . This could be a barrier for many students.
When it comes to , look for one with no annual fee. If you’re planning to study abroad, consider a program that doesn’t charge overseas transaction fees on items you buy overseas. The ideal student card for traveling should also belong to a network that is widely accepted around the world, such as Visa or Mastercard.
Benefits and rewards are rarer on student cards compared to “regular” credit cards, but you can find exceptions. Decent reward rates at this level start at 1% back. While this is below average, any rewards you can earn by accumulating credit are a bonus.
A typical “closed loop” store credit card can be used to make purchases from a specific retailer, online or in store. (If the store card is open-loop, it can be used virtually anywhere.) Store cards tend to offer discounts and sometimes rewards in exchange for your loyalty. They can be ideal if you shop at that store frequently or want to build up credit.
Store credit cards are often available , although they generally offer low credit limits and high interest rates.
Closed-loop store cards might seem limited because you can only use them with a specific retailer, but many open-loop versions have improved recently, offering higher reward rates on daily spending.
If you’ve already started timing your credit history with a loan, you may have more credit card options to choose from. To qualify , your credit score should be between 630 and 689 FICO points.
In this credit range, unlike other options for your first credit card, incentives such as rewards or signup bonuses are more likely. But credit cards for fair credit are also known to charge higher interest rates, so it’s important to pay off your balance in full each month. Otherwise, you could end up in a cycle of debt, and the interest would also decrease the value of any points, miles, or cash back rewards you earn.
(credit scores of 629 or less) do not require a security deposit and can accommodate beginners in credit.
But NerdWallet doesn’t recommend these cards because they tend to have annual fees and high interest rates. These products are designed to reduce the risk of the issuer lending to people with bad credit; some even charge a one-time processing fee and a monthly fee. Therefore, they are often expensive to wear over the long term.
Plus, unsecured bad credit cards usually don’t offer options to help you upgrade to a better credit card once you’ve established a good payment history. You are probably stuck with the same card and the ongoing charges attached to it. And if you , this could negatively impact your credit scores, erasing the progress you’ve made on your credit building journey. Secured credit cards – although initially more expensive to open – are often a better choice whether you have bad credit or no credit.