Ever wonder how credit cards work? OK, the answer’s something that we all know, in hindsight, but, for some reason, credit cards tend to get a bad rap, with these little pieces of plastic part of finance myths you’ve been told your whole life as being bad. Just the sound of debt and a poor credit score is enough to drive you away. But credit is important, especially if you’re looking to buy a house or car, or even rent an apartment in the near future.
So, where do you start? With hundreds of brands and banks to choose from, it’s a little tricky picking the right credit card that suits your needs and one that actually accepts your application. We’ve got some tips on how to build credit and some of the best cards for doing so.
Why TF Do I Even Need Credit?
What do your grocery run and retail therapy sessions have to do with anything other than your fridge and closet? A lot actually. Your spending habits and your ability to pay off credit card bills, student loans and other payment plans can easily affect what cards you’re eligible for, what apartments you can rent, what car and housing loans you can take out, what insurance rates you can get, and even the jobs you’ll be offered. Building credit and keeping a good score will certainly be beneficial down the road.
Can I Build Credit Without A Credit Card?
Yes, you can actually, but it’s not as easy as it is to do it with a credit card. Taking out loans and paying them can build credit, and even shelling out money for rent counts for some credit scores. There are specific personal loans you can take out that also count toward building your credit. Becoming an authorized user on one of your parents’ cards to build credit is easy, too — assuming they trust you. These can all help you when it comes to getting a card of your own.
What Are Good Credit Cards To Start Out With?
Good question. There are so many out there and depending on your credit, completing applications for some might be a big waste of time. There are four credit card types that are good options to consider when you’re first starting out. Another recommendation is to avoid retail credit cards, at least for now. While they do have some pros, they have quite a few limitations and often very high interest rates.
Here are a few credit card types that can be worth it for newbies in the credit world.
Secured Credit Cards
Secured credit cards are ideal for people who either have no credit or really bad credit. Secured cards have the same capability as a regular credit card, but you have to put a payment down. The amount you give is usually the credit limit you’re allowed. It’s a nice way to work up to a kick-ass credit score without much risk at all.
Once you’ve built credit you can move on to cards outside of the secured credit card realm. Check out Capital One Secured Mastercard, Discover it Secured or OpenSky Secured Credit Visa Card. These are three popular options that rank highly with a lot of credit card reviewers and financial institutions.
Travel Credit Cards
If flying the friendly skies is always on the calendar, a travel credit card is not only a snazzy way to build credit, but you can rack up miles to use toward those vacations of yours. Even if you’re not an avid flier, frequent travelers of all kinds can benefit.
The restaurants you eat at and the tickets you buy whether it’s for a train, bus, or plane, can give you cash back and help you earn points to cash in for other items. These cards are a win-win as long as you pay your bills on time. Alaska Airlines Visa Signature Credit Card, Chase Sapphire Preferred Card and United Explorer cards are all great for getting miles, free checked bags, points and cash back.
If there is a certain airline you typically fly with, check their website for credit card options. Most have them, and if you’re blowing money on tickets, you might as well get rewarded for doing so.
Rewards Credit Cards
Rewards are always a pleasant surprise to receive, especially when you’re spending a good amount of money. Many cards have special deals and discounts if you shop at a store during a certain period of time. Depending on the card, places like Starbucks, RiteAid, Whole Foods and Kohl’s are just a tiny sampling of the stores that can give you a certain percentage off your purchases or cash back. Other cards allow you to redeem points for cash, gift cards, or donations to charities.
Three good ones to look into are Capital One Quicksilver Card, Chase Freedom Unlimited, and Discover it Cashback. You and your credit score will be rolling in rewards in no time.
Low Interest Credit
Credit card perks, rewards and traveling are great, but interest rates of some cards are mind numbingly high. Paying a 27 percent interest rate isn’t ideal, especially if you’re just starting out in your career (and working to just pay for some dang groceries). Luckily there are some credit cards that offer very low rates or even zero percent APR for one to two years.
Chase Freedom, Citi Simplicity Card, and Wells Fargo Cash Wise Visa Card are three low interest cards that are worth looking into. They all offer very low or no starting rates, and the Citi Simplicity Card is the only credit card that has no late fees, annual fee, or penalty rates ever. Seriously.
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