Best Credit Cards for Building Credit April 2024

Pros and cons of credit-building credit cards

As with any type of credit card, credit-building products come with a number of pros and cons. To help you understand if a credit-building card is the right product for you, we’ve put together a list of the main benefits and drawbacks of these cards.

Pros and Cons of Credit Cards for Building Credit

What does it mean to build credit?

Building credit is the process of establishing a good credit history. That means paying bills on time and managing your accounts responsibly so that the information on your credit report supports a better credit score and shows lenders that you are a low risk as a borrower.

People generally work to build credit when they don’t have good credit or don’t have credit at all. Young adults who have never had a credit card or loan before likely don’t have credit, for example, and individuals who have struggled financially and missed some payments may need to rebuild credit after their scores dropped.

Why is building credit important?

Understanding what the best credit card for building credit might be in your case is important because improving your credit opens many financial doors in the future.

Access to credit

When you have a stronger credit profile and better credit score, lenders are more likely to approve you. Better credit can mean the difference between getting a rewards credit card or not. It can also impact your chances of getting approved for a car or home loan.

Renting a home

Credit can impact your housing situation even if you aren’t ready to become a homeowner. Many landlords and leasing companies run a credit check on prospective tenants and won’t lease to someone who doesn’t meet minimum credit score requirements.

Lower insurance premiums

Auto insurance companies use a variety of methods for calculating the potential risks associated with drivers, such as checking your driving history. Some also do a credit check, and if your credit score is low, that can increase your premiums, as auto insurers see it as a potential risk factor.

Job opportunities

Some employers include a credit check in their background check procedures. This is more common when the job involves handling finances or money, and poor credit may mean you aren’t considered for a position.

Financial flexibility

When you have good credit, you’re more likely to get approved for various loan and credit line products. This can create flexibility with regard to cash flow that can make it easier to weather short periods when your income drops or your expenses increase.

Greater peace of mind

With credit opportunities more at your disposal, you may be less stressed about money in general. Having good credit also reduces anxiety when you do apply for a loan or credit card.

Best credit cards for building credit

There’s not one best card for building credit, but these are some types you might consider.

Student credit cards

Among the best cards to build credit for younger adults are student credit cards. These products, offered by many major credit card companies, are designed specifically for college students who are unlikely to have lengthy credit profiles. Credit card companies see students as potential long-term customers, so they offer special cards that don’t require any credit history for approval.  

Secured credit cards

A secured credit card requires you to make a deposit to secure your credit limit. For example, if you deposit $300, your credit limit with the card is $300. You typically get your deposit back once you close your account if your balance is $0. In some cases, you may be able to earn your deposit back over time with responsible account management.

The best secured credit cards to build credit have annual fees under $40 and offer flexible deposit options. These cards are easy to get because the creditor can use your deposit to cover its losses if you fail to make payments.

Store credit cards

Store credit cards are branded cards that you can only use at specific retailers. Best Buy, Walmart, Home Depot and Kohl’s are just some examples of retailers that offer such cards. Because the credit limits are typically fairly low and you can only use the card at the single retailer, these cards can be easier to get approved for than some general credit card products.

Subprime unsecured cards

Subprime unsecured cards are products designed for people with bad credit who don’t want to make a security deposit. To reduce risks, lenders may attach a variety of fees and higher APR to these accounts. For example, you might pay a higher annual fee or pay small monthly maintenance fees. A good example is the Surge Mastercard, which doesn’t require a security deposit but has fees that can add up to $245 per year.

Alternative underwriting cards

Some credit card companies are willing to look past traditional credit reports and evaluate your likelihood of paying your bills in other ways. They may look at your history of making rental and utility payments as well as your income. Alternative underwriting typically requires you to provide documentation such as copies of tax returns, paycheck stubs, or bank account statements so the underwriter can review your financial situation.

What to look for in a credit card for building credit

The best credit card to build credit is one that works for you. Review the details of the card and account before you apply.

Card characteristics to look for include the following:

How to use a credit card to build your credit score

The best way to build credit with a credit card is to manage your account responsibly. 

Some tips for doing so include:

• Limiting spending. Don’t use your card for anything you don’t have in your budget.
• Pay your bill in full each month. Avoid carrying over balances, as that can increase your interest costs.
• Make all payments on time. A single late payment can derail your credit-building progress. Use auto payments, notification reminders, and other tools to help you remember to pay your bill on time every month.
• Don’t apply for credit cards just because. Applying for a card can cause a hard inquiry on your credit report. Too many of those inquiries can bring your score down. Do your research and only apply for cards when you really want the card and believe you have a good chance of getting approved.

What to do if you are denied a credit card

If you’re denied a card, you’ll get a written response from the lender telling you why. You may want to pull your credit report to determine if there is any inaccurate negative information you can dispute to repair your credit before attempting to apply for another card.

If your credit report is accurate, you may need to apply for a card with less stringent credit requirements. Alternatively, you can work on paying down existing debt and making timely payments on existing loans to improve your credit history before applying for another card.