7 Best Credit Cards for Building Credit

Susan Shain

Susan Shain | Blog

May 22, 2019 | Updated May 23, 2019

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.

Not sure whether you’ve established credit history or not? Try checking your credit reports and free credit scores. Then, before filling out any applications, make sure you understand how a credit card works.

Best Credit Cards for Building Credit

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.

Key Features

  • Annual fee: $0
  • Credit line increase: After making your first five payments on time
  • Rewards: 1% cash back on every purchase; if you pay on time, that increases to 1.25%
  • No foreign transaction fees

Don’t get scared away by the name — you can get this card whether or not you’re a student. With no annual fee and cash back rewards, 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.

 

Key Features

  • Annual fee: $0
  • Credit limit: $500–$10,000
  • Rewards: 1% cash back on every purchase; increases to 1.25% after six on-time payments, and 1.5% after 12 on-time payments
  • No foreign transaction fees or late fees

This non-traditional option is another one of the best credit cards for building credit. While Petal will check your credit history (like other issuers), it doesn’t require any established credit to qualify. Petal will request access to your online bank account to help determine your ability to pay your bills.

The card’s also unique in that it doesn’t charge any fees (including late fees), offers a tiered reward system that increases as you make on-time payments, and encourages you to pay your bills in full to avoid owing interest.

 

Key Features

  • Annual fee: $0
  • Credit line increase: After making your first five payments on time
  • No foreign transaction fees

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.

Best Secured Credit Cards for Building Credit

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.

Key Features

  • Security deposit: $200–$2,500
  • Annual fee: $0
  • Rewards: 2% cash back at restaurants and gas stations (on up to $1,000 per quarter, then 1%); 1% on everything else
  • Cashback Match: At the end of the first year, you’ll receive double the cash back you earned
  • Upgrade path: Every eight months, Discover will review your account; it may give your deposit back and upgrade you to an unsecured card

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.

 

Key Features

  • Security deposit: $49, $99, or $200 for a $200 credit line (depending on creditworthiness); can deposit up to $1,000 for a $1,000 credit line
  • Annual fee: $0
  • Credit line increase: After making your first five payments on time (no additional deposit required)

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 Credit Card (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 account and start a new one (and reduce your average age of accounts, which can negatively affect your credit).

What’s the difference between a credit card and a debit card? With credit cards, you’re taking a loan from the issuer; with debit cards, you’re electronically removing money from your checking account. That’s why credit cards help you build credit, whereas debit cards don’t. Some other benefits of credit cards: They usually come with $0 fraud liability, which means you won’t be on the hook for fraudulent purchases, as well as perks like car rental insurance and cash back rewards.

Best Student Credit Cards for Building 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.

Key Features

  • Annual fee: $0
  • Rewards: 5% cash back in rotating categories, for up to $1,500 per quarter; 1% after that
  • Cashback Match: At the end of the first year, you’ll receive double the cash back you earned
  • Good Grade Reward: $20 annual reward for a 3.0 GPA, for up to five years

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.

 

Key Features

  • Annual fee: $0
  • Rewards: 2% cash back at gas stations and restaurants, up to $1,000 per quarter; 1% after that
  • Cashback Match: At the end of the first year, you’ll receive double the cash back you earned
  • Good Grade Reward: $20 annual reward for a 3.0 GPA, for up to five years

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.

How Do Credit Cards Build Credit?

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 severaly damage your credit, and fast.) Here’s a full rundown of what goes into your scores.

What’s In Your Credit Score?

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.

Credit card interest is really high — often more than 25%. When you’re just learning about responsible credit use, be careful with cards that tout a “0% intro APR.” If you get into the habit of not paying your statement in full, you could wind up with a hefty balance that results in high interest charges when the introductory period is over. And, though it might be tempting, you should also stay away from “no credit check” cards, as these often come with high fees and poor customer service.

5 Important Tips for 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 poor 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:

  • Always pay your statements on time: The cardinal rule of credit cards is to pay your bills on time. To make it easy, set up an automatic withdrawal from your checking account that covers your monthly payment. Read more about how paying a credit card works here.
  • Only charge what you can afford: To stay out of debt, only spend as much as you can comfortably pay off each month. We recommend always paying your statement balance in full, as that will prevent you from owing interest on your purchases, and keep you from spiraling into unmanageable credit card debt.
  • Never take out a cash advance: Credit cards are different from debit cards, and should never be used at ATMs outside of emergencies. Cash advances come with high fees and interest rates — and aren’t worth the cost. They can also make you look desperate for money, potentially increasing your risk profile to lenders.
  • Ask for a higher credit limit: Once you’re in good standing with your credit card issuer, request a credit limit increase. Often, you can do this right from your online account. If you receive an increase, don’t max out your card to its new limit — keeping a higher percentage of your credit available will lower your credit utilization ratio and can increase your credit scores.
  • Don’t close your first card: If and when you graduate to a different credit card, don’t close your first card (unless you need to close a secured card to get your deposit back). An important factor in your credit scores is your “average age of accounts.” The longer, the better, so it’s wise to keep your oldest account open forever.

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.

You’re getting closer to being a credit card pro — find more credit advice and resources in the Insider Academy.
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