Starter Credit Cards: What's a Good Starter Card?

Are you ready for your first credit card? It is possible to get a card even with no credit. Read on for your options and our top card recommendations.

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Entering the world of credit can be intimidating. But you're actually at a great place.

You get to start with a completely blank slate. You don't have any past mistakes haunting you and have an opportunity to make good choices. You'll have a much easier road to building good credit.

Starter credit cards are ideal for beginners because they're less complicated and carry less risk of big debt.

But how do you choose one? Learn about the different kinds of cards you can apply for and our recommendations.

First Time Credit Card to Build Credit

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Here are some reasons to start using credit cards:

• Start building credit history. This will help you with almost everything later on in life, including renting an apartment, buying a car, and even qualifying for a job.

• More payment flexibility. You won't have to carry cash everywhere.

• Pave the way for better credit cards in the future. As your credit gets better, you can apply for cards such as travel reward cards (which will allow you to trade points in for flights and hotel nights).

Starter credit cards typically have lower credit limits. Because card issuers don't know yet if you'll pay back the debt. But this is good because it means you won't be able to get into thousands of dollars in debt.

Starter cards also don't usually have huge rewards. But we've got some options for beginner cash back cards, which is a good perk to get a little something back for your purchases.

Read on.

• If You Have No Credit
  
• If You Have Some Credit
  
• If You Have Good Credit
  
• If You Are a Student
  
• Alternative Options for Beginners
  
• Using a Credit Card for the First Time
  
• Frequently Asked Questions

If You Have No Credit

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Don't worry if you have no credit. Every one of us started from there.

In this case, your best option is a secured credit card. Here's how it works:

To open an account, you need to put down a security deposit. This reduces the risk to the lender in case you don't make your payments. In exchange, you'll get a credit card with a credit limit (usually the amount of your deposit). You can then use your secured credit card to make purchases as normal and pay off the bills as normal.

If you don't make the payments, the lender can choose to withdraw money from your deposit to cover the defaulted amount. And if you have no outstanding balance and are in good standing, you can get your security deposit back when you close your account.

Secured credit cards report to the 3 major credit bureaus to help you build credit with responsible use. Consider these as a trial run with credit cards.

• Advantages: Low risk of debt. And you will get used to receiving and paying a credit card bill every month, while building credit at the same time.

• Drawbacks: Fees and lack of flexibility. You will need to save up all the money for your security deposit beforehand. You'll have a low credit limit, which means you'll need cash to make larger purchases. A lot of secured credit cards also have a small annual fee (generally under $50).

If You Have Some Credit

If you have taken out a loan before (like student loans or had a parent co-sign a car loan), had a student credit card, or are a user on your parents' credit card, then you have some credit.

This means you may be eligible to apply for a starter unsecured credit card. These cards have much lower approval requirements, so you have a higher chance of getting one even with a limited credit history.

The best thing to do is to start slow. Charge just a few purchases each month, and make sure to pay off your bill in full when it arrives. You want to continue to build your credit by showing that you are able to make timely payments.

• Advantages: No deposits; build credit. You won't have to put down a deposit and you'll receive a credit line. Just use it responsibly to continue to build positive credit history.

• Drawbacks: Debt risk. You will need to be financially responsible. Even at a low interest rate, debt can accumulate quickly. You can also destroy your young credit history by missing or making late payments, and it can take years to rebuild it.

If You Have Good or Excellent Credit

If you know you have good or excellent credit, then you can apply for better rewards cards.

Having excellent credit means that you have had a few years already with paying back loans and/or using credit cards. You always pay your bill in full and on time each month. Generally, you cannot have any derogatory remarks on your credit report for at least the past 2 years.

• Advantages: better reward programs. The best credit cards are for people with excellent credit. These cards often offer big bonuses, high rewards, and 0% APR promotions.

• Disadvantages: Temptation to overspend. Sometimes, the awesome reward programs will tempt you to spend more on things you normally wouldn't buy. To avoid this, pick a card with a reward structure that fits with your lifestyle.

If You Are a Student

If you're a student, the best option is to apply for a student credit card. Even with no credit history, you can usually be approved for one as long as you have a cosigner or have proof of income. A cosigner is someone with good credit and who promises to be responsible for your debt.

Generally, student cards have a lower credit limit. This is good because it prevents overspending. You should only be using it for necessities and emergencies.

Some student cards even give you reward incentives for having a good GPA.

• Advantages: Start building credit early. This is a great way to start building credit before you fully enter the "adult world."
  
• Drawbacks: Risk of ruining your credit history. If you're not responsible with your card (missing payments, etc.), you can tarnish our credit score before you even really get started. Even if someone else is legally responsible for your debit, your score will still take a huge hit (as well as that of your cosigner).

Alternative Options for Beginners

If somehow, you don't qualify for one of these starter cards, don't worry. There are other ways to build credit.

In the meantime, here are some alternatives if you need cash fluidity:

• Debit card: Carrying around cash is just so much hassle. Debit cards draw money directly from your bank checking account. There is no debt risk since you are spending what you already have. It's essentially just a more convenient version of cash. But this won't help you build any credit.

• Prepaid cards: You load money into a Visa or Mastercard card and then can spend from it instead of carrying cash. You can reload as needed. The major advantage of prepaid cards is that you don't need a bank account to get one. All you need is the cash you want to load onto it. Again, there is no risk of debt, but it also doesn't built credit.
  But watch out: Pay careful attention to any information about fees. These cards are notorious for fees: activation fees, reloading fees, overdraft fees, and standard monthly fees in the neighborhood of $10 per month are all fairly common.
  

• Become an authorized user: This option actually helps you build credit. By becoming an authorized user on someone else's credit card, you will get a credit card with your name, which you can use for purchases. Make sure this person has good financial habits. Because if they are often late with payments or go over their credit limit, your credit could be hurt as well.

Tips on Using a Credit Card for the First Time

Getting your first credit card is exciting. But it's important to use it responsibly or else you can get into trouble faster than you know. Here are some good tips to using your card responsibly:

• Charge only what you can afford. Don't get too swipe-happy just because you have credit now. Only buy stuff that you would normally buy with cash.

  If you were paying in cash, would you be able to afford it? If so, then go ahead and charge it.

  There may be situations where you need to charge a larger purchase that you don't have all the money for. In that case, have a solid plan to pay it back as soon as possible.

• Pay your balance in full each. If you're charging only what you can afford, then it should be no problem to pay your bill in full each month. If you pay in full, you won't have any interest. It's tempting to only pay the minimum, but that's how the interest adds up quickly.

• Pay on time each month. And lastly, remember your statement due date and pay on time. If you pay late or miss payments, you get slapped with late fees and/or a high penalty APR. Your credit score will plummet too.

Frequently Asked Questions

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Q. How do I know if I have credit or not?
If you have done any of the following, then it's mostly likely that you have some credit:

• Was an authorized user on someone else's credit card
  
• Had someone (such as a parent) co-sign a loan with you
  
• Took out a student loan and are currently paying it monthly
  
• Used a student credit card while in college

If you think you may have credit, you can get your credit report for free at annualcreditreport.com.

Q. How do I get credit when I have no credit?
If you have no credit history at all, the easiest way to build some credit is with a secured credit card. You need to put down a security deposit to get a credit line. As you make payments, the issuer will report to the credit bureaus, which will help you build credit.

Another easy way to build credit is to become an authorized user on someone else's credit card (like a parent's). Or have a parent co-sign a loan with you. With these options, you need to have a good relationship with that person.

Q. What determines a credit score?
Your credit score is made up of five factors:

• Payment history (35%): do you pay your bills on time and do you have a balance?
  
• Credit utilization (30%): how much credit you're using compared to what you've been given.
  
• Length of your credit history (15%): length of time you've had credit accounts and activity.
  
• Types of credit (10%): what kind of credit you have (credit cards, car loan, student loan, etc.).
  
• New credit (10%): number of new applications for credit or inquiries.

Q. How old do I have to be to apply for a credit card?
Legally, you can apply for a credit card as long as you're 18 and over. But at that young age, you will have a hard time becoming approved for one. At less than 21 years old, you will most likely need a parent or guardian cosigner. UNLESS you can prove that you have an independent source of income (i.e. not from your parents).

For secured credit cards and prepaid cards, you just need to be 18 years old. You don't need a cosigner. All you need is the cash for the deposit.

Q. What kind of credit limit will I get?
Starter credit cards usually won't give you a high credit limit. The issuers don't know yet if you are capable of paying back debt on time. So they won't give you too much money. Don't be too disappointed if you start out with just a credit limit of $500-$1,000.

Q. How long before I can get a higher credit limit or upgrade to a better credit card?
Usually it will take at least 6 months of using a credit card before you build enough credit history. During this time, it's extremely important to pay your bills on time each month. After several months of good payment behavior, you can try either asking for a credit limit increase, or upgrade to a credit card with better rewards.

Q. What can I do to improve my credit score faster?
Unfortunately, you can't fast track your way to excellent credit. The best way to prove that you're responsible with loans by making timely payments. Paying in full will show that your income supports your spending.

Another important factor is to keep your credit utilization low (ideally at only 30%). This means that if you have a $500 limit, you should only be using around $150. Unfortunately, having such a low credit limit means that it's easy to max out your card. So we recommend to start with only using your new card for a few small purchases a month.

Bottom Line

We have given you a few of our top recommended starter credit cards. But make sure you do your research as well. Make smart choices and choose a card that matches your risk level. For example, if you know you tend to overspend, maybe start with a secured card first. Also consider the card fees, the amount of the credit limit, and whether the card will help you build a credit history by reporting status to the credit bureaus.

When you get your card, make it a habit to pay your bill on time and in full each month. What you do now will set the scene for your financial future. Let's make sure it's a bright one.