Getting Your First Credit Card
My 18th birthday present to myself was a secured USAA credit card. I remember being so freakin’ excited when I dialed USAA’s phone number to apply. I wasn’t excited to get the card and go on a shopping spree, though. I was excited to get a credit card to start building my “financial profile.” The quotation marks are intentional because I feel like sometimes, personal finance terms can be a little vague — like, what does a “financial profile” even mean?
I knew my credit score was one proven way to help me achieve my Financial Freedom Number and it was finally my turn to start building credit. My parents didn’t put me as an Authorized User growing up, so I started at ground zero. Fast forward 3 years, my husband and I travel solely on reward points and leverage card perks for freebies.
For example, our most recent freebie additions are monthly subscriptions to Audible and Peacock thanks to the American Express Platinum Entertainment Credit. But how does someone reach this point when starting at ground zero? Let’s talk about it.
Identify Your First Credit Card
Student Credit Cards
A student credit card can be the foundation to establishing an excellent credit history. With the right card, you can leverage rewards and cashback to achieve your financial goals. Simply being a student may not be enough for some student credit cards, though. Generally, you’ll need income to qualify for these types of cards. However, the low to no annual fees combined with great perks make these cards favorable to beginners.
Notable student credit cards include Discover it® Student Cash Back (1-5% cashback + Unlimited Cash Back match after your first year) and Discover it® Student chrome (1-2% cashback + Unlimited Cash Back match after your first year).
Secured Credit Cards
Secured credit cards are a great option for consumers looking to establish an initial credit history or improve their credit score. There are three major drawbacks to secured credit cards, though: 1) they typically carry higher Annual Percentage Rates (APRs) than unsecured credit cards, 2) they don’t offer perks, and 3) they require a deposit, which, in turn, is your credit limit.
My first credit card was the USAA secured credit card with a $500 deposit and if I could go back in time, I would have attempted to get a student credit card first. At the time, the USAA secured credit card had a $45 annual fee, so it was costing me money to build my credit without any rewards or cashback in return.
I ended up canceling this card after I got the American Express Delta Platinum card a year later.
Notable secured credit cards are Capital One Platinum Secured Credit Card (Minimum deposit of $49), Capital One Quicksilver Secured Cash Rewards Credit Card (Minimum deposit of $200), and Discover it® Secured Credit Card (Minimum deposit of $200).
*Bonus Tip: Be selective of which cards you cancel. Generally, you want to keep your average length of credit history as long as possible, so closing your oldest account may cause your score to drop. If you do not foresee yourself keeping the secured credit card indefinitely, perhaps try getting another option in this blog first.
Fair Credit Cards
Fair credit cards are designed for consumers with a limited credit history or a credit score that falls in the Fair (580-669) and the Good (670-739) range. Often, these cards carry low to no annual fees and offer some sort of benefit, whether that’s rewards points or cashback.
Notable fair credit cards are Capital One QuicksilverOne Cash Rewards Credit Card ($39 annual fee, 1.5% Cash Rewards Back) and Credit One Bank® Platinum Visa® ($39 annual fee, 0-1% Cash Rewards Back).
Keep Your Utilization Low
After you’ve identified and gotten your first card, it’s time to be intentional with your spending. Experts recommend keeping your credit utilization below 30%. This means you aren’t spending more than 30% of your total credit limit each month. For example, if your credit limit is $1,000, you want to keep your balance below $300 each month.
Be Aware of Fees
Credit cards have fees, but there are ways to avoid them. A list of common credit card fees include: annual fees, interest charges, late payment fees, foreign transaction fees, balance transfer fees, cash advance fees, and so forth. Before you apply for a new card, understand the fees and make a plan to avoid them. For example, paying your balance on time and in full each month will avoid any late payment fees and interest charges.
Pay More Than The Minimum
Part of being a responsible credit card user means spending within your financial means. A common phrase in personal finance is, “If you don’t have the cash to buy the item, don’t buy it on a credit card.”
Game Plan to Prioritize Future Cards
The world of credit cards is vast and there are a lot of rules to follow, such as Chase’s 5/24 Rule and keeping hard inquiries as low as possible to preserve your score. I always recommend making a game plan to prioritize future cards you’d like to get. For example, I currently have the American Express Delta Platinum, Best Buy Visa, Chase Sapphire Preferred, Alaska Airlines Visa, and the American Express Platinum Card.
My husband and I acquired these cards every 6 months to keep our hard inquiries low and to ensure we could meet the minimum spending requirements to hit the Sign Up Bonuses (hello points!). To stay on track, I created a spreadsheet with the Card Name, Minimum Spend Requirement, Date Applied, Date Received, and other helpful information.
I also have our future cards on the spreadsheet so that we can plan accordingly. If we have a large expense, we review our future card list to see if we’re able to hit the Minimum Spend Requirement with the large expense. If we are able to, then we’ll apply for the new card.
We’ll be adding at least one other credit card to our arsenal this year to pay the remaining balance on a cruise. By paying off the cruise, we will have enough points to cover the next vacation we take. What credit card is next on your list?
These are David’s personal favorite credit cards for service members!