Understanding credit can be challenging, especially if you’re just starting out. One of the best ways to start is by getting the right credit cards for building credit. In this article, we will guide you through the maze of options so you can start building a strong credit history.
Why Credit Matters: More Than Just Shopping
Credit isn’t just about spending; it reflects your financial trustworthiness. A good credit score is like a golden ticket that opens doors to various financial opportunities. For example, if you want to buy a house, a good credit score could help you qualify for a mortgage with a lower interest rate. This can save you thousands of dollars over the lifetime of the loan. Similarly, if you plan to start a business or even get a job, your credit score could influence your success.
Starting Small: Entry-Level Credit Cards
If you’re new to the credit world, starting with an entry-level credit card is a wise choice. These cards often have more lenient approval criteria, making them accessible to people without a credit history. But watch out for high fees and interest rates. You can use these cards for small purchases like groceries or gas and then pay off the full balance each month. Doing this consistently will help you build a credit history without getting into debt.
The Safety Net: Secured Credit Cards
Another option to consider is a secured credit card. Unlike standard credit cards, secured cards require depositing a certain amount of money as collateral. The deposit usually sets your credit limit. If you deposit $500, you’ll get a credit limit of $500. The main benefit of secured cards is that they’re easier to get if you have bad or no credit. However, you must manage the card wisely; otherwise, you risk losing your deposit.
Reward Yourself: Cards with Perks
As you become more familiar with using credit cards and your score starts to climb, you may be interested in cards that offer rewards. Some cards offer cash back on purchases, points for travel, or other types of perks. These cards usually require a better credit score, but they can be beneficial if used correctly. For instance, you can earn points for everyday purchases and redeem them for flights, hotel stays, or cashback. But remember, the key is to pay off your balance in full every month to avoid interest and fees.
Monitoring and Adjusting: Keep an Eye on Your Score
Just having a credit card won’t automatically boost your score. You’ll need to manage your credit wisely. Many companies provide free monthly credit score updates. Use this to track your progress. If your score isn’t rising as you had hoped, review your credit report for errors or areas for improvement. Maybe you’re using too much of your available credit, or you may have missed a payment. Identifying these issues early allows you to adjust your strategy.
Chime states, “We don’t believe in unnecessary fees or profiting from our members’ misfortunate. We have no fees to apply, no annual fee or interest, and no fee to replace your card.”
By understanding why credit is important, starting with an entry-level or secured card and eventually moving up to reward cards, you are taking steps in the right direction. Don’t forget to monitor your credit score and make adjustments as needed. With disciplined use and regular monitoring, you’ll be well on your way to building a strong credit history, which will benefit you in many areas of life.