Advice on Choosing a First Credit Card

I recently had an exchange with an old friend of mine named Spencer, who is finishing college and interested in acquiring his first credit card. He writes:

I was writing to ask your advice on Credit Cards. I know that you are a credit master, and I’m finally looking at getting my first card. I’ve been searching around, but so far I’m still totally overwhelmed. Do you have any suggestions for a first, easy to handle card? I’ll just get getting it to establish my credit line and using more like a Debit card (only buying things I can already pay off)… Any advice would be much appreciated. I don’t wanna end up with credit issues like Greece… 🙂

Mr. IM replies:

Hi Spencer! No, you definitely don’t want to end up with debt issues like Greece, but if you’re fiscally responsible, you will avoid it.

First of all, I’m glad that you already plan to treat the credit card like a debit card – that’s the golden rule of CC usage. Too many believe believe the credit line granted to them by a credit card company is somehow their money. Nothing could be farther from the truth. A credit line is borrowed money, money that will accrue interest if not paid back in full within the grace period. Never buy anything on credit that you cannot afford to pay in full. Keep that motto in mind and you will never have credit problems.

So that’s the first rule of thumb. Here are some other thoughts:

1) Just say NO to annual fees. Ignore all cards that come with an annual fee just for using the %@# card!

2) Ignore the APR. It’s used to calculate how much interest you will pay each month if you don’t pay the card in full by the due date. Paying interest is for suckers. I don’t care if my APR is 400%, I’ll never have to pay it. Credit card companies hate you if you pay your bill in full by the due date – you’re considered a deadbeat to them because you’re not profitable. 🙂

3) DO care about rewards. As an incentive to get you to use your card (and hopefully rack up debt), many companies use loss-leaders in the form of CC rewards. Essentially, they end up paying YOU to use their card. Reward systems vary: sometimes they’re in the form of airline miles, straight-up cash, or some other arbitrary point system. I prefer simple reward systems above anything else, and therefore suggest finding a card that will give you at least 1% cashback on all purchases. CC rewards are nice, but don’t let them manipulate you into inadvertently spending more money on the card just to build rewards (as in: I only need to spend another $300 before I can cash in my rewards!). Again, keep the golden rule in mind, and always ask yourself, if I were spending cash for this purchase, would I still buy it?

4) Forget about balance transfers. This is a major way CC companies earn fees. In essence, it’s how people end up paying one credit card with another. They’re loaded with fees. Just follow the golden rule, and you’ll never need to worry about it.

5) Ditto on cash advances. Just forget they exist. NEVER use an ATM to pull money from a credit card. This is called a cash advance, and your CC company will charge you an arm and a leg for it. That’s what debit/ATM cards are for.

6) Read the paperwork. You’ll get a bundle of paperwork with your card. Read it all, or at least scan for the F-word (fee, of course!). You will also occasionally receive notifications of policy changes in the mail. Again, look for that F-word. It’s pretty rare for them to suddenly spring something like an annual fee on you, but it could happen. I have about 20 credit cards (ya really), and I’ve only had them introduce an annual fee once. I immediately canceled the card. The moral of the story is: don’t just throw away notices from the CC company in the mail.

7) If you’ve read this far, by now you’re surely looking for specific recommendations. 🙂 Okay, okay, I’ll give you a few. First, though, allow me to say that I hate Chase. Those a$$holes change their terms all the time, always in their favor. I’ve seen them kill reward systems for my favorite cards. Just avoid them!

You are a student, but I recommend staying away from student cards unless you don’t get approved for others. Student cards usually are pretty stingy with their credit lines, thereby making it easier to go over your limit (and get charged fees, of course). If you have to get a student card, then one of the Dividend Platinum Select cards from Citi on this page would be alright. This one from Capital One would be okay, too.

For non-student cards, here is one that is worth a look. It’s from Associated Bank (look for the Rewards card), and it has a $25 bonus (statement credit) the first time you use it. However, it looks as it you also must have a banking relationship with them in order to apply for the card. Oh, and here is one from Dollar Bank that offers 1.25% rewards. Again, the only catch is that you also have to have a regular bank account with them to be eligible. It might be too much hassle for the little extra rewards amount.

One final thing: almost all CC applications ask for annual or monthly household income, not just your personal income. This is used to help determine your credit limit, and many people think of it as a commonly exploited loophole. What is a household anyway? Everyone in your dorm or apartment? If you live at home, it could be your parents’ and other siblings’ income! I don’t suggest outright lying, but unless they ask directly for your personal income, just know that certain liberties are available. Again, follow the golden rule, and you’ll avoid trouble.

Hope that gets you started! Feel free to ask more questions, and let me know the results!

(NB: no affiliate links are used in the above message.)

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