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So you’ve heard you should focus on “building your credit” — and that getting a credit card is a good way to do so.
Though a lot of the stuff that’s online (or that your friends tell you) is baloney, those two statements are very true.
Having strong credit is important, as it helps you obtain competitive interest rates and qualify for loans, apartments, mortgages, and sometimes even jobs. And one of the easiest ways to build credit is with the smart use of credit cards.
In this article, we’ll reveal the best credit cards for building credit, followed by an explanation of how this strategy works.
If you want to get a credit card with no credit, you can’t go straight for the best rewards cards with all the bells and whistles. For a while, you’ll need to stick to cards designed just for you — for people with limited credit. Here are three great choices.
Don’t get scared away by the name — you can get this rewards credit card whether or not you’re a student. With no annual fee and a simple cash back rewards program, this is one of our favorite credit cards to build credit. Most importantly, it offers a direct route toward a higher credit line, which could increase your “available credit” and may therefore improve your scores.
This non-traditional option is another one of the best credit cards for building credit. While WebBank, the lender, will check your credit history (like other issuers), it doesn’t always require established credit to qualify. WebBank may request access to check your bank account to help determine your ability to pay your bills.
The card’s also unique in that it offers a tiered reward system that increases as you make on-time monthly payments.
While this card doesn’t offer any rewards, we’re including it because it’s from a reputable issuer, has no annual fee, and comes with an easy pathway toward a higher credit line.
If you can’t get approved for the unsecured credit cards above — or if you don’t trust yourself with credit quite yet — you can consider getting a “secured” credit card instead. Though these cards are generally designed for people with poor credit, they can also serve as good credit cards for beginners.
With secured cards, you put down a refundable security deposit that, in most cases, serves as your credit line. They differ from prepaid cards in that they usually report your behavior — ideally, to all of the major credit bureaus (Experian, TransUnion, Equifax).
The following secured options are all good credit cards for building credit.
With no annual fee, generous cash back rewards, and an easy upgrade to an unsecured card, this is our top pick for a secured card with solid credit-building benefits.
This card works a bit differently than most secured cards. The issuer will determine your initial deposit amount based on your creditworthiness, and in return, you’ll receive a $200 credit limit. Alternatively, you can deposit more (up to $1,000) for a larger credit line.
While this card’s a solid option, it doesn’t offer rewards or an automated upgrade path, so we’d recommend the Discover it® Secured (Review) instead. In our opinion, the only reason to prioritize this card is if Discover isn’t frequently accepted where you live.
Getting a higher credit line than your deposit can be useful, especially for young people, but if you’re looking for a similar secured card with an upgrade path, check out the Citi® Secured Mastercard® (Review). Some readers have reported being upgraded from it to the Citi Simplicity® Card - No Late Fees Ever (Review). These upgrades are helpful because you don’t have to close the credit card account and start a new one (and reduce your average age of accounts, which can negatively affect your credit).
Since many first-time credit card holders are students, card issuers have designed a slew of cards especially for them. Here are two we like.
With no annual fee and excellent rewards, we’d say this is the best credit card out there for students with no credit. You could earn 5% back on rotating categories like Amazon, restaurants, gas stations, and Lyft, plus a Cashback Match at the end of your first year.
This card is extremely similar to the preceding card; the major difference is it earns 2% cash back at restaurants and gas stations, rather than 5% in rotating categories. If you don’t want to deal with the hassle of signing up for bonus categories each quarter, then this card might be a better bet. Otherwise, we say apply for the Discover it® Student Cash Back (Review) instead.
Now that you know which credit cards are best for building credit, you’re probably wondering how, exactly, it all works.
Think of it this way: If you’ve never taken out a line of credit before, lenders have no information about you. Your mom can vouch for you all she wants; they still don’t know whether you’re going to be a great borrower or a terrible one.
Since giving you a credit card with a $500 limit is less risky than, say, giving you a $150,000 mortgage, many lenders view credit cards as a safe way to give you a trial run. For you, they’re a potentially free and easy way to get your foot in the door and demonstrate you can use credit responsibly.
Once you apply for and receive your first credit card, the credit card issuer will usually begin reporting your behavior to the credit bureaus.
It’ll let them know how long the account’s been open, how much of your available credit you’re using, and how many payments you’ve missed. (Be warned that late payments can severely damage your credit, and fast.) Here’s a full rundown of what goes into your scores.
This chart shows the criteria used to create FICO scores and their relative importance in your credit score.
By making purchases on your card, then paying your bills on time and in full, you’ll slowly begin to “establish credit.” Want to learn more about this process? Read the definitive guide to building credit with credit cards.
As someone without credit, you’re in a powerful position. Although you’re starting from the ground up, you haven’t yet made any mistakes that will take years to erase. (If you already have bad credit, take a look at these credit cards for rebuilding credit.)
So it’s important to proceed with caution — and build your credit slowly and responsibly. Here are five tips to follow:
When you’re at the beginning of your credit journey, it can seem like you’ll never attain the scores you want. But by using credit cards wisely and diligently, you’ll slowly build your credit — and will eventually be eligible for the best credit cards and interest rates around.
If you’re looking to build your credit, make sure you pick a card that suits your situation — whether that’s a simple secured card or a rewards card designed for limited credit — and use it responsibly.
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