What should I look for in a credit building card?

Question

About a year ago I asked if I should open a credit card just to start a credit score once I turn 18. I turned 18 a few months ago and will qualify to open a card under the Credit CARD act of 2009 (I have enough income to qualify).

I have about $1000 in my checking account and I am going to this card as a debit card (meaning I will not buy anything I wouldn't be able to immediately pay off using the current balance in my checking account).

I've been shopping around for cards to apply for with little credit history, and all of them seem about the same. They all have

• Between $0-$100/yr fee
• 20%ish APR (which is kind of irrelevant to me)
• 1-1.5% cashback on all purchases

One thing I did notice is that not all cards gave you a grace period to pay off the debt - meaning if I were to make a purchase, I'd immediately start owing interest on top of it instead of a month later. That made me wonder if there are any other factors I should consider other than the three listed above.

I am comfortable getting a secured card as long as the deposit is returned within a year or so (as long as I make my monthly payments, which I will). I live in the US.

Answer 1

A great list of all the aspects to consider when shopping credit cards can be found at the question What should I be looking for when applying for a credit card?.

For your specific situation, just getting started using credit, my recommendation for you is to make sure that you don't pay a penny to the bank in interest or fees. Don't get fooled into thinking that the annual fee is worth it for the rewards, or that the interest rate is so low that it is worth it to borrow money.

Therefore, if I were you, I would limit myself to cards that have no annual fee. Like you said, the interest rate should be meaningless for you.

Cashback rewards are a great bonus, as long as it doesn't encourage you to buy things that you wouldn't have bought if the rewards weren't there.

You mentioned the grace period: As far as I know, the Credit Card Act of 2009 requires all U.S. credit cards to have a no-interest grace period on new purchases. This, of course, is critical: you should only be using a credit card if you will never pay interest. I don't think you'll find a card without a grace period, but if there is one out there like that, stay away from it.

Answer 2

According to your actual job mentioned in the comments:

low-paying job (retail, $13.50/hr at around 20-30 hours a week)

And to your credit history:

no credit history (in US)

I would strongly suggest to NOT apply for any (unsecured) credit card, the chance to get your applications denied is extremely high.

As you mentioned, I would start with a secured credit card, easy to get, with grace period (all of them nowadays), that offers a monthly credit score report and that doesn't "hard-pull query" your history when you apply (e.g. Discover) with as much deposit as you can comfortably give as collateral. In your case I would say $500.

As usual, the balance should be paid in full and on-time and the credit utilization ratio should be <30%, ideally in the 9-19% range.

Within the first weeks you should jump automatically to a 630-670 VantageScore (e.g. the one offered by CreditKarma via TransUnion). After some time you should start receiving pre-approved offers for unsecured credit card with a small credit line.

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(Please Note: I mentioned Discover as one of the secured credit card I found with all the characteristics mentioned. I am not affiliated with Discover in any way. I am pretty sure there are more credit cards on the market with those properties, that was just an example)