7 Options for Your First Credit Card
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A first credit card can be an exciting milestone and even a foundation for future financial success — but you may have to knock on a couple of issuers' doors before you find one.
As a first-timer, your options are limited compared with applicants with longer credit histories and excellent credit scores, and rejection is not uncommon. It's important to focus on credit cards that are right for you.
The ideal starter card should save you money and report your payment history to all three major credit bureaus: TransUnion, Equifax and Experian. These companies record the information used to calculate your credit scores — a necessary step for you to establish credit. If the card offers a pathway to upgrade to a better credit card in the future, that’s a plus as well.
Here are a few potential options to consider for your first credit card.
NERDWALLET'S GUIDE TO YOUR FIRST CREDIT CARD |
1. Cards that allow co-signers
When you can’t qualify for a credit card on your own because of your income or thin credit history, a co-signer with a good credit score (of 690 or higher) may offer you access to one. Under this arrangement, you would be listed as the account owner and appear on the bill, but the debt will appear on both your credit reports and those of the co-signer who's vouching for you. Both you and your co-signer are legally responsible for the debt.
Many issuers no longer allow co-signers, although some do. But it’s a serious favor to ask of any friend or loved one because that person will be left footing the bill if you can't pay it. And if you miss any payments, their credit can suffer along with yours. A co-signer is essentially putting their good credit history at risk to help you build yours.
If you find a willing co-signer, you can independently manage your credit card, and your name is printed on it. You’re responsible for staying on top of the account and keeping up with payments. The co-signer just steps in if you can’t.
An alternative to co-signing is having someone with good credit add you as an authorized user on their account. You still get a credit card with your name on it, but the primary cardholder has more control over the account since they are responsible for managing it and making direct payments. In this scenario, the primary cardholder alone is legally responsible for the debt. Some issuers report authorized users’ credit activity to credit bureaus, but not all.
2. Secured credit cards
When you can’t qualify for a traditional credit card, secured credit cards may be an option. They require a security deposit upfront — typically a few hundred dollars — as collateral.
The amount you deposit determines your credit limit, and it reduces the risk to the issuer lending you a line of credit.
The deposit may present an obstacle for some, but unlike an with annual fee, you eventually get that money back when you transition to an unsecured credit card or close your account in good standing.
3. Alternative credit cards
Most major card issuers evaluate creditworthiness based in part on the traditional FICO credit scoring model, meaning that first-time applicants with thin credit histories often don't have high enough scores to be approved.
But in recent years, alternative credit card issuers have been implementing new ways to evaluate creditworthiness beyond FICO scores and credit history. Some of these startup issuers use their own nontraditional underwriting standards based on factors such as income, employment and bank account information.
Otherwise, these products function like regular credit cards. You typically don’t have to pay a security deposit, they tend to have low fees, and some of them even offer rewards.
4. Student credit cards
Some student credit cards don’t require you to be a student — but just because you are a student doesn't mean you'll definitely be approved for one.
Typically, these cards are targeted toward 18- to 21-year-olds, but those younger than 21 will have to be able to show proof of independent income. That could be a roadblock for many students.
When it comes to choosing a student credit card, look for one without an annual fee. If you’re planning to study abroad, consider one that doesn’t charge foreign transaction fees on things you buy overseas. The ideal travel-friendly student card should also belong to a network with broad acceptance worldwide, like Visa or Mastercard.
Perks and rewards are more scarce on student cards compared with “regular” credit cards, but you can find exceptions. Decent rewards rates at this level start at 1% back. While that's lower than average, any rewards you can earn while building credit are a bonus.
Already have a student credit card? Find out what you can do with it once you graduate.
5. Store credit cards
A typical "closed-loop" store credit card can be used to shop with a specific retailer, either 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 frequently shop at that store or if you want to build credit.
Store credit cards often are available even to those with only fair credit, though they generally offer low credit limits and high interest rates.
Closed-loop store cards might feel limiting since you can use them only with a specific retailer, but many open-loop versions have improved recently, boasting higher rewards rates on everyday spending.
6. Credit cards for fair or limited credit
If you’ve already started the clock on your credit history with a loan, you may have more credit card options to choose from. To qualify for credit cards for fair credit, your credit score needs to fall within the 630 to 689 FICO score range.
In this credit range, unlike with some other options for your first credit card, incentives such as rewards or sign-up bonuses are more likely. But credit cards for fair credit are also known for charging higher interest rates, so it’s important to pay your balance in full every month. Otherwise, you could get caught up in a debt cycle, and the interest would also chip away at the value of any points, miles or cash back you earn.
7. Unsecured cards for bad credit
Unsecured credit cards for bad credit (credit scores of 629 or lower) don't require a security deposit and may welcome credit newbies.
But NerdWallet doesn’t recommend these cards because they tend to have high annual fees and interest rates. These products are designed to lessen the issuer’s risk of lending to people with bad credit; some even charge a one-time processing fee and monthly fees. Therefore, they're often expensive to carry over the long term.
Plus, unsecured cards for bad credit typically don't offer options to help you graduate to a better credit card once you establish a good payment history. You’re likely stuck with the same card and the ongoing fees attached to it. And if you close the account, it could negatively impact your credit scores, erasing the progress you’ve made in your credit-building journey. Secured credit cards — though initially more expensive to open — are often a better choice, whether you have bad credit or no credit.
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