Establishing credit is often a difficult task for new borrowers. This is complicated by the wide range of available credit card choices that are currently on the market. In our article, we’re going to cover some important facts to consider before deciding on a particular credit card. We’re also going to recommend three of the best credit cards for beginners as well.
Things You Should Know before Deciding on the Best Credit Cards for Beginners
Understand the Importance of APR
One of the most crucial facts you should know before deciding on one of the best credit cards for beginners is the importance of your APR. For those of you who do not know, APR stands for annual percentage rate. This is the total costs that you will pay for the money you borrow from the credit card company. The majority of credit card companies reflect their interest rate charges as APR on their websites.
The reason APR plays such an important role in beginner credit cards is that the typical borrowing costs for these types of cards are much higher than cards for those with established credit.
To put things in perspective, say you have a $500 balance on your credit card. Each month, you are making set payments of $20. If your APR was a rather low 15 percent, your card would be paid off in approximately 30 months. If your interest rate were closer to 25 percent, that same credit card debt would take you approximately 35 months to pay off.
Thankfully, there are plenty of free calculators available online that will help you see the difference a few percentage points make in your APR. Consider using these calculators to help you determine how long it will take you to pay off your balance with different interest rates. These online tools will help you make an informed decision when deciding which card is best for you.
Don’t Forget about Hidden Fees
When deciding on the best credit cards for beginners, it’s also very important to not forget about hidden fees. While these fees are actually disclosed in the user agreements for your cards, it’s extremely easy to forget about them until you’re charged.
Once charged, these fees can cause your credit card balance to go over your maximum credit limit when your card is already close to being maxed out. This results in even higher minimum payment amounts that can be difficult to make on short notice.
One of the most common fees you will see on credit cards for beginners is a yearly tax. These yearly fees are charged just for having the card. For those who will not be using the card much, it’s likely best to avoid cards with these fees whenever possible. Those who will be using their card often will have a bit more wiggle room in budgeting for these charges. The typical annual fee you will see on beginner credit cards ranges from $25 to $50.
Another charge you should watch out for is the foreign transaction fee. Also called conversion fee, this type of charges is assessed each time you process a transaction abroad. This really has a negative impact on international travelers. Unfortunately, it’s also extremely common to be charged these fees when using e-commerce websites as well. It all depends on where the credit card processor is located on the website you are using.
The last two fees to be on the lookout for are inactivity fees and account closure fees. The names pretty much spell out exactly what these charges are for. Unfortunately, these fees are often some of the most difficult to avoid and can be particularly problematic for people who prefer to use their cards as little as possible.
The Benefits of Secured Credit Cards
Those with limited credit card history may be best looking for secured credit cards. How do secured credit cards work? In short, you agree to pay a deposit that covers a portion of or your total spending limit on the credit card. Your credit card company will hold onto that deposit for an established duration and use it to cover your outstanding debt should you default on your card.
In exchange for taking fewer risks, the approval rates for these credit cards are often significantly higher. The interest rates charged on these cards is also typically lower than unsecured credit cards for those with similar credit history. The reason you opt for these types of cards is to help you establish a positive credit history and work your way to more competitive offerings in the future. After an established time, most credit card companies will refund you your deposit and convert the card to unsecured status.
Three Best Credit Cards for Beginners
1. CapitalOne Secured Mastercard
One of the best credit cards for beginners is the CapitalOne Secured MasterCard. It has no annual fees and comes with three different deposit amounts. The initial deposit amount is determined based on your credit score.
The starting credit limit for this card is $200. You can also unlock a higher spending limit by making your first five monthly payments on time. One thing to keep in mind is that it has a slightly higher APR of 24.99 percent.
2. CapitalOne Quick Silver One
The Quick Silver One credit card is another one of the best credit cards for beginners. This is an unsecured credit card type that has a yearly fee of $39. The annual percentage rate of this particular credit card is 24.99 percent.
However, the high yearly fee is somewhat offset by the impressive 1.5 percent cash back program. Their program has no minimum payout requirements and no expiration on your rewards for the lifetime of the account. This card is an ideal choice for people who will pay off their card each month and use it regularly.
3. Open Sky Secured Visa
Another one of the best credit cards for beginners is the Open Sky secured visa. With an initial deposit of only $200, you can easily increase your total credit limit by making additional deposits. The maximum credit limit obtainable with this particular card is $3,000.
On the other hand, the APR for it is relatively low at 18.39 percent. This is slightly offset by the annual fee of $35. Nonetheless, you can really save with this credit card by paying your balance in full each month.
The three best credit cards for beginners covered in out article have a lot going for them. They have competitive interest rates, report to all three credit bureaus, and easily lead to better credit offers in the future.
An important note to remember is that you should always check the credit card company website to make sure important fees like the APR remained the same before applying. Feel free to share any credit card recommendations you have as well in the comments section.