Getting your first credit card can be tricky. You have to build a solid credit profile to be eligible for most products, but you can’t start to build this profile until you’ve been awarded a line of credit.
The process of getting your first credit card can be even more complicated when you’re young.
Federal regulations prohibit card companies from issuing credit to anyone under 21 unless the applicant has a stable source of income or a willing co-signer.
But having limited options doesn’t mean you should apply for any product you think you’ll be granted. Instead, here are a few characteristics to look for in your first credit card.
Low-to-no rewards program, a low credit limit
First-time credit cardholders shouldn’t be overly concerned with scoring some nice rewards.
“You don’t want a card with too many bells, whistles and features that you don’t understand,” says Bruce McClary, Director of Media Relations for ClearPoint Credit Counseling Solution. Instead, your focus should be on building a solid payment history that will help you score lower rates on all types of loans later on.
Opting for a no-frills card with a low credit limit will help ensure you stay on track. It’s also one of the reasons that secured cards, which minimize the risk of default by requiring applicants make a down payment upfront that matches the card’s line of credit, remain a popular option for first-time cardholders. These types of cards generally keep a card’s credit limit between a few hundred to a thousand dollars.
Reasonable interest rates, low annual fees
“You have to come to grips with the fact that you’re not going to get the best deal,” McClary says, but that doesn’t mean you should sign up for a predatory credit card. Instead, look for a card that carries a reasonable annual percentage rate (APR).
According to Laura Creamer, a financial education specialist with CredAbility, a nonprofit credit counseling organization, credit card APRs start around as low as 8%, but can run 25% or higher.
“Once you get into the twos, you’re looking at a high interest rate,” Creamer says.
Annual fees should also be a point of contention since these costs are so varied and you don’t want to lock yourself into a product you can’t afford. Most secured cards tend to carry annual fees between $25 and $60. Rewards cards may have fees of $100 or more, but there are many products on the market that skip over the annual fee entirely.
Taking the upgrade route
Since you’re not likely to qualify for a company’s best terms and conditions, you should check to see if the issuer will allow you to upgrade to a better product with lower interest rates or fees once you’ve demonstrated a solid payment history. Most issuers allow you to upgrade, or to at least request an upgrade, after 12 months of card activity, McClary says.
He also points out it’s a good idea to take a look at the other products an issuer has in its catalog. This will ensure the product you upgrade to has terms and conditions favorable to the next stage of your credit journey.