Signing up for (and using) your first credit card can be exciting. Not only does it give you spending power that you didn’t previously have, but you’re building your credit history at the same time. If you get the right card, you can also earn rewards on the things that you’re already buying. So, what is the best first credit card to consider?
Let’s look at a few ideal choices for a first-time credit card, as well as how your credit history (or lack thereof) will impact your decision.
Things to Look for from Your First Credit Card
Before choosing the credit product for which you’ll apply, there are a few considerations to keep in mind. This includes your current credit score, your plans for the card, and whether you want to earn rewards.
Your Credit Score
Whether you’re apply for your first credit card or your fiftieth, your credit score will come into play. This score is a measure of your creditworthiness, based on your history of successfully using credit, the debt you carry, and even the number of times you’ve recently applied for a line of credit. It utilizes the information found in each of your three credit reports, which you can access for free once a year through AnnualCreditReport.com (the only government-authorized website for acquiring your complimentary annual reports).
There are hundreds of different credit score calculations out there, but banks will most often use either the FICO or Vantage Score. You can estimate your score through MyFICO, get a free calculation through many banks or companies like Credit Sesame, or pay for your score through a credit monitoring service. The average FICO score in America is 695.
Score ranges vary depending on the calculation you use. Your score will either be considered Poor, Fair, Good, Very Good, or Excellent (sometimes called Exceptional), based on where you fall in the range.
This will play a large role in determining whether you’re approved for the credit products for which you apply. If you have poor credit, or no credit at all, you will have trouble acquiring many credit cards, and may need to think about a secured credit card. (More on that later.)
Low Rates and Fees
The better your creditworthiness, the lower the interest rate for which you’ll qualify. Whether you’re getting a first-time credit card or applying for a mortgage, your credit will play a role in the interest charged.
If you pay off your credit card in full each month, you won’t ever have to worry about paying interest, whether you spend $5 or $50,000. This is the ideal way to use a credit card, of course.
However, if you carry a balance over from month-to-month, you’ll pay interest on the remaining debt owed. The interest rate charged will depend on the card, the rate for which you qualify, and even the type of debt (for instance, purchases, balance transfers, and cash advances can all have their own rates). This calculated interest will then be added to the balance owed, increasing the total amount of money that you will pay to the credit card company in the end.
If you choose to pay only the minimum due each month, for instance, your remaining balance will continue to carry over each month. And each month, the credit card company will charge you interest on that balance, adding to the total debt every single day. The following month, your fees will be calculated based on that new balance, meaning that you’ll end up paying interest on last month’s interest! This is called compound interest, and is the reason that credit card debt is so discouraged.
Every credit card is different, but you can expect to pay an average of 22.99% interest on your credit card charges, if you have fair-to-good credit. The higher your score, the better rate for which you’ll qualify.
Rewards
Many credit cards today offer rewards on the things you buy, in the form of points, miles, or cash back credits. These desirable cards are a great way to save money, but you need to be careful.
It’s easy to be incentivized to spend more, when you know that you’re earning rewards on your charges. Credit cards automatically make overspending easier, and earning cash back on purchases can amplify that effect. If you have any concerns about your ability to responsibly manage spending, it might be wise to use a non-rewards credit card for your first product.
Then, once you’ve avoided bad credit card habits, successfully built up a positive credit history, and avoided unnecessary debt, you can move on to a more lucrative card.
Considerations
Before you get your first credit card, there are a few important practices to keep in mind. These will allow you to be a successful credit cardholder, as well as build a healthy credit score (without a mountain of debt).
You should always pay your statement in full. This allows you to bypass the aforementioned interest rate, which can dig your debt hole even deeper.
You should also pay your bill on time each month. Late payments will be reported by the credit card company to the three credit bureaus, and this black mark will follow you for seven years! It will also have a significant impact on your credit score. Do whatever you can to pay your bill on time, every time.
Different Types of First-Time Credit Card Users
There are all sorts of folks who apply for their first credit card. Some are students or young adults, many of whom have no credit history at all. Then there are adults who probably have other credit products (like a mortgage, auto loan, or student loans), but haven’t felt the need to get a credit card in the past.
There are also those who have had issues with finances in the past – such as defaulting on a personal loan or going into collections with various bills – and have avoided credit cards as a result. For this latter group, they may have even tried to get a credit card in the past and been denied. No matter where you fall on the spectrum, there is likely a credit card product for you.
Certain credit cards are marketed to young adults and college students. Most of the time, they have low initial credit limits, and some of them utilize rewards to pay down your student loan debt. They have lower thresholds for credit history, too, so that those who are new to the credit game have a chance at approval.
If you have had other credit products but simply never signed up for a credit card, there are plenty of options available to you. You can apply for any average-range credit card out there, with a reasonable expectation of approval. Since you don’t have a revolving credit history, your initial limit will probably be low.
For those who have had financial trouble in the past, there are also credit cards for you. Most of the time, your best bet is to get a secured credit card. This type of card utilizes a security deposit, allowing those with poor or limited credit the opportunity to get approved for revolving products.
Best First Credit Cards for Rewards
If you’re looking to earn rewards with your first credit card, there are many options.
To earn cash back, a good option is the Discover it Card (there’s also a student version!). Not only does this card offer up to 5% back on certain revolving categories – often things like gas and Amazon purchases – but they will also double your cash back earned in the first year.
For college students, the Journey Student Rewards from Capital One is worth a look. It even rewards you for good credit card habits: pay your bill on time, and your cash back rate will jump from 1% to 1.25% each month. You’ll also receive an automatic credit limit increase after five months of on-time payments.
If you want to work on building your credit (whether it’s nonexistent or you have a poor history), a secured card is your best bet. A great first choice is the Discover it Secured Credit Card, which earns between 1-2% cash back on purchases, matches your first year’s cash back, and has no annual fee.
Secured vs. Non-Secured
There are two types of credit cards available: those that are secured and those that are non-secured.
A non-secured credit card is your “typical” product. You’re approved for the card, given a credit limit, and you can charge up to that amount each month. Then you’ll be billed, and can either pay the balance in full (recommended!) or carry the balance over and only pay the minimum.
The other type of card is secured. This card is for those who have poor or limited credit, and who have trouble getting approved for other lines of credit. With this type of card, the account holder will need to place a deposit in order to “secure” the account, which is usually equal to the credit limit of the card. They can then spend up to this amount each month, before making a payment on the account.
While secured cards are less convenient (often offering higher interest rates, annual fees, and the inconvenience of a security deposit), they are ideal for those with limited options. You can build your credit history over time with one of these cards, though, then move on to a more traditional, non-secured credit product.
Find Your First Credit Card
With all of the credit cards out there, it can be difficult to determine which one is right for your first. There are a few ways to approach the process, though.
Your first order of business is to figure out where you stand, credit-wise. This means checking over your credit report, getting your credit score, and correcting any inaccuracies that you may find. Once you know your credit score (and creditworthiness), you can narrow down the products for which you’re more likely to be approved.
From those, compare any offers that may be available. Certain credit cards give new cardholders perks like bonus cash back, introductory 0% APR, and even balance transfer promotions. Others may waive annual fees for the first year.
See which card will benefit you the most while also meeting your needs.
If you want to know which card is idea for your credit history, credit score, and spending habits, take some time to browse our current offers. Here, you can also see which cards are ideal for your credit score, and the reviews left by others.
