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Though these pieces of advice — like paying your bill on time and in full, using up very little of your credit limit and constantly reviewing your credit card charges — are all important notes to make, there are some factors to consider before you ever even swipe your first card.
It's important to start good credit behavior early, which means making sure your first credit card is affordable.
First-time cardholders should shop around before they apply and look out for what interest rates and fees (such as annual fees and foreign transaction fees) that banks and credit card issuers charge. Though you only pay interest on a credit card if you carry a balance, it's important to know ahead of time what you could be getting yourself into before it's too late.
Credit card interest rates are notoriously high — the average APR being 16.61%, according to the Federal Reserve's most recent data. With many cards charging compound interest on outstanding balances, this could really eat away at any person's finances.
Since credit card issuers are required by law to disclose interest rates and fee information on their website, the good news is that this information is not hard to find.
Keep in mind that each time you apply for a credit card and a lender checks your credit, a hard inquiry shows up on your credit report and dings your credit score a few points temporarily. It's therefore worth doing your homework beforehand so that you reserve your hard inquiries for only the cards you actually want and can afford.
While many credit cards exist for beginners, it's important to note that you likely won't have a high credit limit when you just start out.
This is because a lot of the credit cards that you'll be able to qualify for with very little credit history are secured credit cards. These cards differ from traditional (unsecured) credit cards in that they typically require cardholders to make a security deposit upfront (usually around $200) that acts as your credit limit. For the bank, this deposit acts as collateral in case you don't pay your bills each month. Some of the best secured cards include the Capital One Platinum Secured Credit Card for a low deposit requirement (see rates and fees) and the Citi® Secured Mastercard® for low interest from a major bank.
But not all credit cards for building credit are secured cards or require the means to put down a security deposit.
The Petal® 2 "Cash Back, No Fees" Visa® Credit Card is a great option for applicants with no credit history at all (if you do have a credit score, it will be reviewed and considered as part of the application process) and the Deserve Digital First Card™ is perfect for international applicants since you don't have to be a U.S. citizen to qualify.
For those with average credit, the Capital One Platinum Credit Card (see rates and fees) allows you to access a higher credit limit after making your first five monthly payments on time. For this reason, it can be a good starter card if you want to eventually upgrade to another card in the Capital One family, such as the Capital One SavorOne Cash Rewards Credit Card (See rates and fees) for earning unlimited 3% cash back on dining and entertainment expenses or the Capital One VentureOne Rewards Credit Card (See rates and fees) for earning unlimited 1.25 miles per dollar on every purchase.
And for those currently enrolled in school or planning to go back, college student credit cards are a smart choice for students looking to establish credit. The Citi Rewards+℠ Student Card is best for making small purchases and supermarket shopping, while the Deserve® EDU Mastercard for Students is best for international students with no credit history. (The Citi Rewards+℠ Student Card is no longer available for new applications).
Once you have shopped around and found the best first credit card for you, remember that your oldest card is the most important to hold onto.
As you work your way toward a better credit score and graduate to a regular credit card, keep your first one and use it a couple times a year so that you maintain your long credit history; the average length of time you've had credit makes up 15% of your credit score.
Information about the Deserve® EDU Mastercard for Students, Citi Rewards+℠ Student Card, Deserve Digital First Card™ has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
Petal 2 Visa Credit Card issued by WebBank.