Credit Cards for Building Credit in America: When looking to build your credit, the credit card you choose matters. Having a poor credit score can negatively impact many aspects of your financial life, from loan interest rates to rental applications.
As you take steps to establish and improve your credit, selecting the right starter card is key. In this article, we will discuss the top recommended credit cards for building credit in America in 2024. With responsible use, these cards can help lay the groundwork for your financial future.
We will review the ideal cards for those with no credit history, poor credit, or limited credit, along with tips for using each card wisely to boost your score over time. You will learn how to leverage these starter cards to establish good credit habits and grow your credit profile.
Why You Need a Credit Card to Build Credit History
Establish Your Credit Profile
Having no credit history can be as detrimental as having a poor one when it comes to securing loans, getting approved for rental properties, or even landing certain jobs. Lenders and creditors use your credit report to gauge your trustworthiness in repaying debts. Without any credit data, they have no way to assess your risk level.
Credit Cards Are Entry Point
Opening and responsibly managing a credit card account is typically the easiest way for young adults or immigrants to start building their credit from scratch. The credit card issuer will report your payment behavior and debt levels to the major credit bureaus each month. Timely payments and low credit utilization can rapidly improve your credit standing.
Alternative Credit Data Limitations
While non-traditional credit data like utility, rent, and phone payments can also contribute to specialty credit reports, most mainstream lenders still heavily favor conventional credit history from major national credit bureaus for approval decisions. A well-aged credit card account remains one of the strongest assets on a credit report.
Develop Healthy Credit Habits
In addition to establishing a credit history, a credit card allows you to practice good financial habits from an early age. Treating the card like a debit card by paying balances in full each month builds discipline in living within your means. Monitoring statements, credit utilization, and payment due dates develops organizational skills.
Build Credit History Responsibly
Acquiring a credit card with a reasonable limit and using it prudently for small, recurring expenses that can be paid off easily is key. Avoid maxing out cards or missing payments, as negative records can severely damage credit scores that took years to build. With responsible usage, a credit card is an invaluable tool for millennials and young families.
The Best Starter Credit Cards for Building Credit in 2023
For those just starting to build credit, choosing the right starter credit card is crucial. A solid credit history opens doors to better interest rates, higher credit limits, and more financial opportunities down the line. Here are some top picks for 2023:
Student Credit Cards
Students often have a thin credit file or none at all. Student credit cards are tailored for this situation, offering relaxed approval requirements and tools to build credit responsibly.
- The Discover it® Student Cash Back card provides cash back rewards on purchases and an automatic cash back match after the first year. This incentivizes good payment habits.
- The Journey Student Rewards from Capital One has a credit tracking tool. Users can monitor their VantageScore and learn about the factors impacting their score.
Secured Credit Cards
A secured card requires a refundable security deposit that becomes your credit limit. This offers an on-ramp to credit for those with poor or no credit history.
- The Discover it® Secured Credit Card has cash back rewards, no annual fee, and helps graduate to an unsecured card after responsible use.
- The Capital One Platinum Secured Credit Card has no annual fee and allows you to access a higher credit line after making your first five monthly payments on time.
Credit Cards for Fair/Average Credit
Those with fair or average credit may qualify for unsecured cards with reasonable terms to keep building their scores.
- The Petal® 2 “Cash Back, No Fees” Visa® Credit Card uses a cash score instead of credit history for approval. It has no fees, rewards, and reports to all three credit bureaus.
- The Capital One QuicksilverOne Cash Rewards Credit Card earns 1.5% cash back and has an annual fee, but it can help boost credit utilization with a higher credit limit over time.
No matter which starter card you choose, using it responsibly is key. Make payments on time, keep balances low relative to your limit, and practice other good credit habits. With discipline, your credit score will steadily improve, opening up more opportunities.
Tips for Using Your First Credit Card Responsibly
Pay Your Bills on Time
One of the most crucial tips for using your first credit card responsibly is to always pay your bills on time. Payment history is the most significant factor that impacts your credit score, so it’s essential to make at least the minimum payment by the due date every month. Missing payments can severely damage your credit score and make it harder to qualify for loans, credit cards, and other financial products in the future.
Keep Your Credit Utilization Low
Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. It’s generally recommended to keep this ratio below 30% to maintain a good credit score. Maxing out your credit cards or using a large portion of your available credit can negatively impact your score and make you appear as a higher risk to lenders.
Monitor Your Spending
It’s easy to overspend when using a credit card, so it’s crucial to monitor your spending habits carefully. Keep track of your purchases, review your statements regularly, and set a budget to avoid accumulating debt you can’t repay. Responsible credit card use involves treating it like a debit card and only charging what you can afford to pay off each month.
Limit the Number of New Credit Applications
Each time you apply for a new credit card or loan, it results in a hard inquiry on your credit report, which can temporarily lower your credit score. Therefore, it’s best to limit the number of new credit applications you submit, especially when you’re just starting to build your credit history.
Understand the Terms and Conditions
Before using your first credit card, make sure you understand the terms and conditions, including the annual percentage rate (APR), fees, and any rewards or benefits. This knowledge will help you avoid unexpected charges and make the most of your credit card’s features.
Consider Setting Up Payment Reminders
To help ensure you never miss a payment, consider setting up payment reminders or automatic payments from your bank account. This can help you establish a consistent payment history and avoid late fees or penalties.
By following these tips, you can use your first credit card responsibly and lay the foundation for a solid credit history, which will open doors to more financial opportunities in the future.
How to Graduate to Better Credit Cards Over Time
Start With a Secured or Student Card
The first step is to open a secured credit card or student card to establish your credit history. Secured cards require a refundable deposit that serves as your credit limit. Student cards are designed for those with little to no credit history. Use these cards responsibly by keeping your balance low and making payments on time each month.
Build Your Credit Over Time
It takes time to build a strong credit profile. As you use your starter card responsibly over 6-12 months, you’ll start to build a credit history. Monitor your credit score and reports, and dispute any errors. Avoid opening too many new accounts at once, as it can ding your score temporarily.
Apply for Better Unsecured Cards
Once your credit score reaches the “good” range (670-739 FICO), you may qualify for better unsecured credit cards with higher limits and rewards. Look for cards with no annual fee at first. Pay on time and keep balances below 30% of your limit to keep building credit.
Upgrade Within the Same Issuer
Many major issuers allow you to upgrade or “product change” to a better card once you’ve proven yourself as a responsible borrower. This can unlock better rewards without a hard credit inquiry. For example, upgrading a basic Chase card to one with travel or cash back rewards.
Monitor and Manage Your Credit Utilization
As you obtain higher limits, keep an eye on your overall credit utilization ratio across all cards. Using more than 30% of your combined limits can hurt your credit scores. Make payments throughout the month if needed to keep balances low.
Credit Cards to Build Credit in the USA – Frequently Asked Questions
What is a secured credit card?
A secured credit card is a type of credit card that requires a refundable security deposit upfront. This deposit becomes your credit limit and acts as collateral for the card issuer. Secured cards are designed for people with no or poor credit history to help establish or rebuild their credit score.
How does a secured card build credit?
Your payment history with a secured card is reported to the major credit bureaus each month, just like a regular credit card. By making on-time minimum payments and keeping your balance low relative to the credit limit, you can steadily build a positive credit history and improve your credit score over time.
What credit score is needed for an unsecured card?
Most credit card issuers look for a FICO credit score of at least 670 to approve you for an unsecured card without a deposit. However, some issuers have unsecured card options for scores as low as 580-620 for those with limited or fair credit.
How long until I can “graduate” to an unsecured card?
Many secured card issuers review accounts periodically (e.g. 12 months) for the possibility of refunding your deposit and product changing to an unsecured card. Consistent on-time payments and low credit utilization can help demonstrate responsible credit behavior.
Are there any drawbacks to secured credit cards?
The main drawbacks are the upfront deposit requirement, lower credit limits, potential annual fees, and lack of rewards compared to unsecured cards. But secured cards offer an accessible way to build credit history when you may not qualify for other products.
Conclusion
As you look to build your credit in 2024, having the right credit card is crucial. Do your research and select a card that fits your spending habits while offering rewards that provide value to you. Read the fine print to understand fees and credit limits.
Use the card responsibly by paying your balance in full each month. With time and diligent card use, you’ll be on your way to establishing and improving your credit. Selecting the best credit card for building credit this year is an important first step in your financial journey.