How to Build Credit With a Starter Credit Card

What Is a Starter Credit Card?

A starter credit card gives people with little or no credit history a way to enter the credit system and begin building a credit profile. Unlike premium cards that require good or excellent credit to qualify, starter cards are designed with accessibility in mind.

When you use a starter card and pay your bill on time each month, that activity gets reported to the credit bureaus. Over time, a consistent record of on-time payments and responsible use helps establish a positive credit history.

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Types of Starter Credit Cards

Most starter credit cards fall into one of four categories. Here's a look at your options.

Secured Credit Cards

A secured credit card requires a refundable security deposit—typically equal to your desired credit limit—to get approved. Because the deposit reduces the lender's risk, secured cards tend to be easier to qualify for than unsecured cards.

In most cases, you'll get the deposit back when you close the account. Some issuers may also refund the deposit while the account is still open, effectively converting the card into an unsecured account. Many secured cards charge an annual fee, but some of the best secured cards don't.

Student Credit Cards

Student credit cards are designed for college students who are new to credit. Unlike secured cards, they don't require a security deposit. Most don't charge an annual fee, and many offer rewards on everyday spending.

Being a college student doesn't guarantee approval, though. Issuers will still evaluate your credit history (if you have one) and income.

Unsecured Credit Cards for Bad or No Credit

Some card issuers offer unsecured cards specifically for people with bad or no credit. These cards don't require a deposit, but they typically come with higher interest rates and fees to offset the lender's risk.

In some cases, you could be required to pay a one-time processing or program fee when you get approved, a monthly fee, an annual fee and an annual percentage rate (APR) upwards of 30%.

Hybrid Debit-Credit Cards

A hybrid debit-credit card combines features of both a debit card and a credit card. Like a credit card, you make purchases and pay them off, and the issuer reports your account activity to the credit bureaus to help you build a credit history.

But unlike a traditional credit card, your spending is typically limited to the funds you have in a linked account, so you can't carry a balance or accumulate interest charges.

They're sometimes billed as secured credit cards, but these cards generally don't require a credit check to qualify, and many don't charge annual or monthly fees.

Why It's a Good Idea to Get a Starter Credit Card

Starter cards often come with fewer perks and higher rates than cards for established borrowers. But the long-term benefits of building credit early make them worth considering. Here's why:

• Builds your credit history: When you use your card and pay on time, that activity is reported to the credit bureaus and helps establish your credit profile. Payment history is the most heavily weighted factor in major credit scoring models.
• Helps you qualify for better credit later: A strong credit history makes it easier to qualify for cards with better rewards, lower interest rates and higher credit limits.
• Improves your chances of loan approval: Without a credit history, getting approved for an auto loan or mortgage can be difficult or come with less favorable terms. Starting early gives you more time to build the profile lenders want to see.
• Supports other financial goals: Good credit can help you rent an apartment, pass an employer credit check, reduce required utility deposits and potentially lower your auto insurance and homeowners insurance premiums.

How to Choose a Starter Credit Card

Not all starter cards are equal. Here's what to look for when comparing your options:

• Look for low or no annual fees. Some starter cards charge annual fees that eat into their value, especially since these cards tend to have modest or nonexistent perks. Prioritize cards that keep costs low.
• Check the interest rate. Starter cards typically carry higher APRs than cards for people with established credit. If there's any chance you'll carry a balance, pay close attention to the rate.
• Compare rewards and perks. Some starter cards—especially student cards—offer cash back on everyday categories like groceries or dining. It's worth comparing, even if rewards aren't your top priority.
• Look for a path to upgrade. Some card issuers allow you to graduate to a better card or refund a security deposit after a period of responsible use. This can save you from having to apply for a new card later.
• Check whether the card reports to all three bureaus. To build credit effectively, you want your card activity reported to Experian, TransUnion and Equifax. Most major issuers do this, but it's worth confirming before you apply.

More Tips on How to Build Credit

Once you have your starter card, how you use it matters just as much as having it. Keep these habits in mind:

• Pay on time, every time. Payment history is the single biggest factor in your credit score. A payment that's 30 or more days late can appear on your credit report and cause significant damage. Set up autopay or calendar reminders to stay on track.
• Keep your balance low. Your credit utilization rate, which measures how much of your available credit you're using, has a significant impact on your score. Aim to keep it under 10%. If you have a low credit limit, consider making payments more than once a month to keep your utilization down.
• Get added as an authorized user. If a parent or family member has a long history of responsible credit card use, ask them to add you as an authorized user on their account. Their card history may be added to your credit report, which can give your scores a boost.
• Avoid unnecessary borrowing. As your credit improves, you may be tempted to open more accounts. Adding tradelines can help your score, but taking on debt you don't need can hurt you in the long run.

The Bottom Line

Getting a starter credit card is one of the most reliable ways to begin building credit, but the card itself is just the first step. Consistent, responsible use over time is what turns a starter card into a strong credit history.

If you're just getting started building credit, Experian Go^™ can help. The free program can help you establish your credit profile, learn about how credit works and get insights into how to build and maintain good credit over time.