Credit cards can work as a blessing when you are starting with your financial future. Credit cards can help you start building credit from the scratch as well as when you have a bad credit history.
But to search for an ideal credit card that matches your requirements can be a difficult task in itself.
If you have started up with no financial credit history and don’t have a regular income, then you need to look for a credit card that doesn’t charge high fees. Credit issuers charge high fees in the name of monthly, annually, and weekly fees. The ideal credit card in this case will be that has less fees and a fair credit limit that can be used to pay the expenses.
There are also other factors like things you need to keep in mind before buying a credit card, why credit credit cards are important for building credit history, what are the best credit card to build or rebuild credit, are there any hidden charges like foreign transactions fees, annual charges, etc.
Along with that, you can compare the benefits, offers, cash rewards, and other benefits like insurance, rent coverage given by the card and find it.
Why is building credit important?
The prime motive of financial planning is that it will help you secure your future and will act as a helping hand in situations of emergency.
Building credit helps in getting customized cash rewards, loans with low-interest rates, offers, and cashback on various purchases.
It helps in enrolling for various financial products. This not only saves a lot of money but also helps you stay rest assured that you’ll be able to get loans easily. Building a Credit score doesn’t come easy, it needs timely payments and smart moves, but in the end, it’s all worth it given the return you get from this.
Things you should know before applying for a credit card to build credit
The following 6 points will help you determine which credit card will be the best for you while you’re shortlisting or applying for credit cards.
Credit Score
Most credit card issuers have a fixed credit score, for consumers and so only those who have the stipulated credit score are issued credit cards. This depends on your credit history that will show your reliability. Credit card issuers rely on such credit history and assess the trustworthiness based on how much time a person takes to pay the dues. The higher the credit score, the higher the chances of you getting a credit card with high credit limit.
Credit Limit
Check what is the credit limit for the credit card you are applying for, at least it has to be that much out of which you can pay your bills. But that’s not mandatory, but until and unless you pay out of your credit and pay it back after a month or so. Then there will be no use of that card or it might defeat the purpose to rebuild credit.
Security deposit
So, there are two kinds of credit cards. One is secured and another one is an unsecured credit card. For a secured credit card you need to pay a certain security deposit varying from $200-$500, having more security deposit can help you get more credit on your credit card. Please note making late payments will result in deduction of security deposits
Timely payments
No matter which credit card you buy, it is always the time that you take in paying your bills is the most important factor when you are focusing on building or rebuilding your credit history.
Annual percentage rate
APR Check for credit cards that are pocket-friendly having a high annual percentage rate can be a serious issue. The average APR for a credit card varies from 14.99%-26.99%.
Foreign transaction fees
This is a surcharge that is made on your credit card if you use it to make a buy that passes through another foreign back or in another jurisdiction. Like foreign transaction fees, there are other kinds of hidden charges that you need to check before applying for a credit card.
Role of credit cards in respect of building credit
Credit cards are a great way to become financially independent and it is particularly common among young adults. While there are many options available for people who want to borrow money, credit cards are gaining popularity, due to the advantages that are provided by credit cards. It is convenient for people and with conscious follow-ups, it can be the most successful one too.
Having said that, credit cards come with a lot of challenges and obstacles that are to be considered while assessing their usability.
Credit cards act as a one-stop solution, to show the lenders your capability of paying off the dates. Whether it is the landlords, utility or phone services providers all check your credit score before giving you the services and while you make on-time payments, your credit history starts building. The same is with loans. You can directly take loans through your credit card and each activity will be scrutinized by lenders and credit bureaus.
A credit card even helps you even when you have a bad credit history due to any defaults, lack of capital, late payments, and so on. There are many credit cards designed for every situation and case. Along with that, everything is planned out for you. For example, every time you open a credit account, the credit card issuer will be informed of your prior history of payments, delay, etc.
If you have a great score, then you will get the credit that can meet your financial expectations. As long as they are sure you can be relied upon, credit cards are definitely the most viable.
Tips when you’re getting started to build credit
Use a secured credit card: This is basically a prepaid credit card. If you have a security deposit of $500, then you’ll be able to spend this amount only. These cards come with very low risk and less fees and charges as compared to unsecured credit cards.
Take loans (credit builder loans or loans that have low credit score requirements): These kinds of loans can be a savior for any person who has just started to build or rebuild credit. As per this concept, you will be paying loans with fixed installments for 6-24 months that will be deposited into your savings bank account.
The limit for this loan varies from 300$-1000$, while you’ll be making the payments. The lender will be sending the information of timely payments to all 3 credit bureaus.
But to take a credit builder loan you need to show some details. The details include employment information, other loan details, and balances, proof of income, housing payments, etc.
You can take credit builder loans from community banks, credit unions, online lenders, etc.
In the case of borrowing loans that need low credit requirements, like students loans. Paying for these kinds of loans can also help to establish or rebuild credit scores.
Become an authorized user: It’s important to mention here about the difference on who can apply for a credit card. While the minimum age to get a credit card is 21, you become eligible to sign contracts and agreements at the age of 18. So, while you can’t have a credit card, you can still work on building a credit score this way. Please make sure that the person you are becoming an authorized user has a promising credit history.
Get approved for a retailer’s store credit card: These credit cards have various benefits. They are easy to get as they don’t have many guidelines or checks when someone is applying for their credit cards. Some of these credit cards can even work like traditional credit cards with certain stores. But, please note that applying for this type of credit card will generate a hard pull, that will damage your credit history. And, if you close this card that will also damage your credit history. So, you need to compare the pros and cons of having this retail credit card and see if this will be the best fit for you.
Please note phone and utility bills are not directly reported to all the 3 credit bureaus. If you want to report this, then you need to use Experian boost, this is a service free of charge that helps you to report the phone and utility bills to Experian credit bureaus.
What are the best credit cards to build credit?
Picking the right credit card as your needs and goals can be a difficult task. To simplify, there are 4 kinds of credit cards, that are discussed below:
- Balance transfer card: This credit card has relatively less interest rates. So, you can transfer your debt amount from your current credit card to a balance transfer credit card and pay less interest rates and fees. Please note you need a higher credit score to be eligible for this card.
- Purchase card: These cards can help you buy things that you are not able to buy in one go but will be able to pay in some installments. This card charges 0% interest rates for a particular period, which can vary from 3 months to 6 months. You can pay your monthly installments without any extra charges.
- Credit builder card: These credit cards are specially designed for people with a low credit score. As these people are considered of high risk, the interest rates and fees are very high but making timely payments consistently.
- Reward Cards: These cards are similar to retail cards, that are used for cashback, store offers, and discounts. Like credit builder cards, they come with high fees and less credit limit.
Further, here we have created a list of 10 credit cards to learn what they have to offer, their pros and cons, and for whom they will be the best fit.
Bank of America credit cards
This is one of the best credit cards to build credit that gives you the chance to have 3% cashback of your chosen category and 2% cashback on grocery and wholesale clubs and 1% on other purchases.
So, it can be a good option for people who are starting up and want to have a credit card that provides them with exclusive offers. This card also comes up with a refundable security deposit of up to $4900. Along with that this bank checks your accounts on a regular interval which checks your payment history, your relation with the bank. If all these factors are aligned with their goals then they will repay your deposits.
Along with that, you receive 1.5 points on each dollar spent and 25000 bonus points if $1000 spent within 90 days.
CapitalOne Platinum secured credit card
Like the bank of America card, this Capital One Platinum credit card also gives you the opportunity to earn back your security deposit. You also become eligible for various upgrades, if you have used the card responsibly. This platinum secured credit card comes with zero hidden charges. For example foreign transaction fees or annual fees.
This card also provides an automatic higher credit line with 6 months. It gives the flexibility to the cardholders to choose a payment date on which the cardholder will be making the payments.
Petal 1 Visa Card
This can be an ideal choice for people who have no credit history and no fees of any kind are being charged on this card.
You are also eligible for instant cashback up to 1% and 1.5% after 12 successful timely payments. With this credit card, you get the opportunity to earn up to 10% cashback on a special merchant.
This card also provides benefits like secondary rental insurance. This card comes with zero foreign transaction fees and gives an opportunity to earn a credit increase in just 6 months. If you have just started working to establish your credit score and you don’t have any credit score. Then this card will get you covered as it will then take into consideration your cash score. The credit limit for this credit card varies from $300 – $5000.
Petal 2 Visa card
This card can be a good credit if you have no or less credit. This credit card charges zero fees(No foreign transaction fees and hidden charges). You don’t need to pay security deposits. Please note that people who have a damaged credit history may not qualify for this credit card. This card gives 1.5% cashback(subject to selective purchases) to people who have 12 on-time payments.
OpenSky secured credit visa card
This credit card does not see your credit history but charges an annual fee of $35 which is not deducted from the security deposit. A minimum security deposit of 200$ deposit is required which is less and affordable. As per Wallet Hub, 99% of customers have established their credit score within 6 months of getting this credit card.
Discover it Secured credit card
This credit card gives you an opportunity to turn your secured credit card into an unsecured credit card within 7 months.
As per the discover it website, they review your account after 7 months. If they see that you qualify as per their standards then your card will get transferred into an unsecured credit card and your security deposit will be given back.
This card has no annual fee and comes with a free FICO score. The only issue with this credit card is that the results are capped, which doesn’t matter if you are taking this card to establish your credit score.
Deserve Master card for Students
If you’re an international student looking to build a solid credit with no previous history then Deserve EDU Master Card is an intelligent choice.
This card comes with features like no yearly payment and cashback rewards. This Credit card does not need you to have a social security number making international students eligible for this card. Some other benefits include protection for mobiles and exemption of foreign trade costs.
Chase Freedom Credit Card
This credit card is one of the best when it comes to handling all your credit card expenditure needs without any amplified costs. With no annual fees and an earning structure that covers things like travel, shopping, etc. This card is an ideal one for building an established credit score. Some attractive features are up to a 5% cash reward on traveling and a $200 bonus on purchase up to $500. There’s another card offered that is Chase freedom’s credit card, designed specifically for college students. This card gives 50$ as a bonus after the first purchase is made within 3 months. This card can prove to be one of the best options because of the rewards and cashback offers for the students. The cardholder will also be eligible for 1% cashback on all selected purchases and also for a standing reward of 20$ after each account anniversary for 5 years. The card also gives an opportunity for credit increase within 10 months of account opening after making a timely limit of 5 months.
US Bank Cash Visa Secured Card
If you are looking to build a strong credit score and earn cash back at the same time then the US Bank Cash Visa Secured Card should be your ideal choice.
This credit card offers some of the best features. For example, you can get immediate cashback on daily purchases and expenses. You can also update to an unsecured card by paying all the bills on time, and an extra 1% cashback on other expenses.
Restore your cashback money in three different ways and pay your bills with ample flexibility.
Chase Freedom Flex Card
This card comes with lucrative cashback offers, like the cardholder will be able to earn $200 after the purchase of $500 within the first 3 months of opening of account. This card doesn’t charge any annual fees and has zero APR for the first 15 months. While this card can also be an ideal option in rebuilding credit, you need to have a credit score from good to excellent to get this credit card.
You can learn more about credit cards for bad credit on the Credit Optimal.
Frequently Asked Questions
Can I build a credit history without credit cards?
Yes, you can. You can act Authorized user for someone else account that has a promising credit history, then it will help you in building your credit history too.
How much time does it take to build a credit history with credit cards?
If you are someone who has just started using credit cards and has a small credit history then your credit score can be increased in just a few months by paying all the bills before the due date and by not exceeding your credit limit. There isn’t an exact timeline to calculate the amount of time it takes to build credit. It depends on a multitude of factors. Depending on when you started using credit cards, your credit score can improve within months or sometimes years.
How to get a credit card with a bad credit score?
You can get a credit card even if you have a poor credit score through credit builder cards. They are specially designed to help people with bad credit scores. There is typically a low credit limit on these cards and a high-interest rate so that you pay your bills on time and improve your score eventually.
How many credit cards should be owned to build credit?
There isn’t a correct number of credit cards to have to increase your credit score. If you have just started using credit cards then one or two cards would be a much safer option to make sure there is consistency in your payments. You can add more cards and can request a higher limit only if you can balance various routes of credit.
What’s the minimum age to get a credit card and start building credit?
As per the CARD Act, People with the age of 21 years or above will be eligible to get a credit card after they show the income.
Through this income, they prove that they will be able to pay back the money to the card issuer.
How to get a credit card when you are a college student?
In past years, it has become difficult for college students, to get a credit card. But if follow the steps like you can become an authorized user, maintain an ideal cash score. And, can show an alternative source of income can help you get a credit card as a college student.
What to do if you have bad credit?
It is difficult to get a credit card with bad credit. But, there are specific cards designed for this purpose, but they have very high fees. So, compare those fees, pay those due installments, and check which type of credit card suits you the best.
Conclusion
Despite all these tips and a list of credit cards, it’s always advisable to check your credit score/FICO score after regular intervals. You can check your credit score for free on the credit karma website. Further, a credit card can be a good option that can help you build credit, but that’s not the only way to build credit. It’s just that it becomes convenient to work towards your goal of building a credit history. Please note, you don’t apply for too many credit cards that you are not eligible for as this can damage your credit. Applying for too many credit cards causes a soft pull, because of the inquiry done by the card issuers.
