The Best Credit Cards for New Grads

NEW YORK (MainStreet) — New grads may be itching to take control of their finances, but adding a credit card to the mix isn’t quite what it used to be.

Thanks to the 2009 Credit Card Accountability, Responsibility, and Disclosure(CARD) Act, credit card companies are prohibited from issuing credit to anyone under 21 unless the applicant has a stable source of income or a co-signer. And as lenders stay reluctant to lend to anyone with little to no credit history, their rules are making it harder for students to secure a line of credit after graduating.

“Markets are loosening up a bit,” says Beverly Harzog, a credit card expert with Credit.com,“ but it’s still hard for those with limited credit to get approved for a credit card.”

That said, graduates do have three basic options when it comes to applying for credit. First, they can ask a co-signer to help them obtain a prime line of credit, or they can get a secured credit card on their own, which minimizes the risk of default by requiring that applicants make a down payment upfront that will match the card’s line of credit.

Grads can also check their local credit unions, which according to Tim Chen, CEO of the credit card ranking site NerdWallet.com, will be more inclined to extend low lines of credit to those without a credit history on file.

Bruce McClary, media relations coordinator for ClearPoint Credit Counseling Solutions, suggests all first-time credit applicants consider the following:

  • Interest rates or Annual Percentage Rates. The average annual interest rate for cardholders is 14.1%, but according to Gerri Detweiler, also of Credit.com, they typically range from 11.24% to 19.8%, depending on the issuer. First-time cardholders tend to end up with a credit line that carries a high interest rate, so comparison shopping before committing to a card can pay off.
  • Annual fees. Many secured cards carry annual, maintenance and user fees since the creditor is taking on a “high-risk” consumer. But you can avoid this by reading through the terms and conditions carefully to make sure the card you’re after isn’t loaded with fees.
  • Your ability to build credit. Verify your new credit card is being reported to all three of the major credit bureaus (Experian, Equifax and TransUnion) before signing up for it. Major banks and well-known creditors are guaranteed to do this, but many subprime lenders won’t, McClary says. If a cardholder’s info isn’t provided to these bureaus, then the cardholder won’t establish a history, which is pointless. “You’d be better off not even having the card,” McClary adds.

Here are the credit cards MainStreet thinks are worth it for new grads:

Orchard Bank Classic MasterCard

According to Harzog, the Orchard Bank card remains a popular choice for those with little to no credit since it allows users to apply for an unsecured card, and provides them with a backup plan if they’re denied the higher line of credit. Grads can fill out an online application that tells them almost immediately whether they qualify for any of the three MasterCards backed by HSBC. Interest rates can be high (7.9% - 19.9%), but the card offers a way to build credit quickly in order to qualify for lower rates down the line.

The card has an annual fee of $29 the first year, then $59 each year after. Customers need to put down a security deposit that’s a minimum of $300, as the credit limit will match the deposit’s amount. Orchard Bank reports to all three credit bureaus monthly.

Open Skye Visa Secured Card

Another card Harzog picks is the Open Skye Visa Secured Card, which carries a particularly low 9.75% APR and whose issuer reports to all three credit bureaus. The trade-off, she says, is that you must pay a $25 fee whenever you want to raise or lower your credit limit. The card’s annual fee is $50, but Harzog says that for those worried about carrying a revolving balance, the low APR can be helpful.

Capital One Secured MasterCard

This card carries a high interest rate (22.9%) and charges $24 in annual fees, but Harzog recommends it for its reputation of helping cardholders to build credit quickly. In fact, with this card, your credit line will increase every time you pay your bill on time.

Cardholders can track their credit using CreditInform, a free service that provides access to credit scores and other credit management tools.
Customers need to put down at least a $200 security deposit, and Capital One charges $19 for late payments. On the plus side, there are no overlimit fees.

CitiBank Secured

Harzog suggests this card, since Citi will invest the money you use to back your credit into an 18-month certificate of deposit with a high interest rate (around 4%).

“It’s nice that your money isn’t just sitting there,” Harzog says, adding that most secured cards don’t let cardholders earn interest from their deposit.

At around 18.24%, the card’s APR is a bit high, but it has a fairly standard $29 annual fee and NerdWallet agrees the card is a good choice for anyone planning to put a lot of capital upfront. The credit line can be anywhere from $200 to $5,000, and Citi offers cardholders the opportunity to graduate to a unsecured card after 18 months.

“The point is to get a card with training wheels, then graduate to the big bike,” Harzog adds.

Discover Open Road Card

If you managed to build good credit while completing your higher education (or had a co-signer), then CardRatings.com suggests you apply for the Discover Open Road Card, which offers all the perks and benefits a new grad needs. This includes a 0% introductory APR rate for the first 12 months—helpful if some time elapses between graduation and your first steady paycheck. After the first year, the APR will be between 11.99% - 20.99%, depending on your credit worthiness.

Cardholders also get 1% cash back on all purchases and added rewards on purchases made at gas stations and at restaurants. Also, students will be spared an annual fee with this card.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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