The best starter credit cards offer easy approval, low fees, lucrative rewards, and the chance to build a good credit score from scratch. But before you apply for a starter credit card, you should know about a few costly mistakes that people commonly make with them.
1. Choosing the Wrong Kind of Starter Credit Card
There are two major types of starter credit cards: secured and unsecured. Secured cards require a refundable security deposit and have the best approval odds. Unsecured cards don’t require a deposit. The best type of unsecured starter credit card is a student credit card, which can offer better terms and benefits than cards available to non-students with no credit.
When picking a starter credit card, you should look for a low annual fee, preferably $0. Rewards are also a plus. Don’t worry about the APR because it will likely be high no matter what. You also won’t owe any interest if you pay in full each month, which is a good habit.
2. Paying an Annual Fee
Whether you opt for a secured or unsecured starter credit card, you will have a lot of options with $0 annual fees. In addition, the cards available to you that charge annual fees typically do not offer any better perks than the cards without fees.
Once you begin building credit and get your credit score to the fair credit range or higher, you can start considering cards that charge annual fees. But you should only get a card with an annual fee if the value you’ll get from its rewards and benefits each year outweighs that fee.
3. Not Paying the Bill on Time Every Month
The main purpose of a starter credit card is to build credit, and on-time payments are the most important step to building a good credit score. Paying late is not only bad for your credit score, but it’s also bad for your wallet in the short term because of potential late fees (and eventually raised interest rates).
Luckily, there’s an easy way to ensure that you pay on time each month. Just set up automatic payments from a bank account. As long as you have enough money in the account to cover your payment, you’ll never have to worry about missing your due date.
4. Carrying a Balance From Month to Month
Each month, your credit card issuer will tell you the minimum payment that you are required to make in order to keep your account in good standing. However, you can pay more than that, and it’s actually ideal to pay your balance in full. Your credit score will improve a lot faster that way, and you’ll save a lot of money.
If you don’t pay in full, your balance will start to accrue interest. If you let interest build up enough, it can be very expensive, as the average credit card APR for new offers is 18.89%.
5. Failing to Track Your Credit Improvement
Getting a starter credit card is the first step to building credit. Once you have a card, it’s important to start tracking how your credit score changes over time.
If you join WalletHub for free, you’ll be able to see daily updates to your credit score and credit report. Plus, you’ll get personalized tips on what you can do to improve your credit score even faster.