Credit Options for Your First Credit Card

The market is jammed full of credit card options calling out for young people to pick them when they decide to apply for a credit card.  Making this choice is critical for those who are just staring out on their own financially.  With so many options it is sometimes difficult to know the right choice to make.  The following information will make sure that you understand the options that are available to you so that you can make the choice that best fits your goals and current financial situation.

The Traditional Credit Card

If you have some credit, you may be able to obtain a traditional credit card at a reasonable interest rate and a low annual fee.  This is certainly the easiest option and, if handled well, can be the cleanest start to a good credit score.

Cosigner

If you are not able to qualify on your own for a traditional credit card, but your parents have sufficiently good credit, you may be able to obtain a credit card by having a cosigner.  A cosigner is promising to repay any debt accumulated on the card in the event that you are unable or unwilling to make the payment.  This can also help by making sure that someone is monitoring both your spending and your repayment history to verify that you are building good financial habits.

Debit Cards

If you are primarily looking for convenience, then a debit card is an easy choice.  Most debit cards can be used anywhere that they accept credit cards.  The downside, of course, is that it does not build credit and it requires that you only spend the amount in your checking account.

Prepaid Cards

Prepaid credit cards are similar to debit cards except that they are not tied to a bank account, but the funds are, instead, held by the credit card company.  This can lead to problems.  If the credit card company does not retain a sufficient reserve and goes bankrupt, you could lose your money.  Additionally, these accounts may have significant fees for use that exceed what interest payments would be on an unsecured credit card.

Secured Credit Cards

A secured credit card offers many of the benefits of a debit card (controls spending) but also reports to the credit agencies (allowing you to build credit).  However, the fees associated with these accounts can be high and should be carefully considered before selecting this as your method of building credit.