The best type of starter credit card is easy to identify: It’s an offer catered to people with limited or no credit that does not charge any fixed fees. After all, your top two priorities at this stage in your credit career should be: 1) Simply getting approved; and 2) Laying the foundation for a good credit score at the lowest possible cost.
College and graduate school students as well as recent graduates with active university e-mail addresses should obviously start out with student credit cards – which are a notch above other types of starter credit cards. Banks offer college students more attractive terms because they prize their above-average earning potential and the potential that exists for them to become lifelong customers. Students can expect to garner a card that does not charge an annual fee yet offers at least a 1% rewards earning rate or 0% for the first few months.
Non-students with limited or no credit have a choice between unsecured credit cards for limited credit, store credit cards, and secured credit cards. A secured card represents your best bet for approval, as you are essentially guaranteed
to get one if you can place a security deposit of at least $200 – which will serve as your credit line and thereby prevent overspending. Store credit cards can only be used at the particular retail chain they are affiliated with. For example, the Target REDcard
can only be used to make purchases at Target. The appeal of store cards is that they tend to have fairly lenient approval standards (because the stores want more people spending more money at their locations) as well as some pretty lucrative rewards. Unsecured credit cards for limited credit, on the other hand, will offer you more spending power but may end up charging the highest fees.
Based on the above, we recommend that you opt for whichever secured credit card charges the lowest annual fee. That way you can begin cost-effective credit building efforts as soon as possible in a relatively low-risk environment where you can practice responsible habits without the temptation to overspend. If you want to boost your credit building and rewards earning capabilities, you may also want to get a store card
associated with one of your favorite retailers, as they are typically free to use.
Our recommendation remains the same for consumers who have made credit management mistakes in the past – get a secured card, as it’s likely to offer basically guaranteed approval. We do not recommend getting an unsecured credit card for bad credit
. By virtue of the fact that they’re targeted to people with a history of financial mismanagement and do not shield issuers from risk like secured cards, unsecured credit cards for bad credit tend to be less attractive than other unsecured starter credit cards and are less readily available. If you have damaged credit, you can learn more about your credit card options and the process of credit rebuilding in our Bad Credit Guide