Someone unaccustomed to borrowing money might decide to get their feet wet with a basic credit card instead of opting for more complicated options. Conditions almost always apply when requesting a card, but there are starter cards for almost any adult with a decent credit score. In fact, most people are first introduced to a credit card when they go to school or obtain a bank account and move out of the house for the first time.
The first step is always to have a source of income, a bank account, or else a cosigner that is willing to pick up the tab if a young adult falls on financial hardship. Many parents offer to sponsor their children with continuing financial support and agree to cosign for student loans or a basic card if they have extra money to help them in this way. It might be possible to obtain a card if a young person has a bank account but limited income.
The third type of credit card is issued by student loan providers. These cards effectively turn general purchases into student loan debt. While interest for student loans are lower than credit card debt, they cannot be discharged except in the case of a severe disability. Starter credit cards offer greater flexibility even though the limit and interest might be less than ideal.
If a young adult has a bank account with a debit card, then they might get into the habit of using this rather than credit. A debit card does avoid using credit, but no rewards apply, and a young person can only build credit by holding onto a card responsibly. The entire point of a card is to have it open for as long as possible in order to improve personal credit score. It also helps if credit is actually used and paid for over time.
A new card is both a risk for a young adult and a potential boon. Someone who moves out for a new job typically needs to buy some type of furniture or basic supplies in order to set up an apartment for a new job. A new credit card temporarily reduces a person’s credit score because of the statistical risk, but that score will rise over time if credit is not abused. Having an old credit card account is one of the most valuable assets in terms of building credit.
Starter credit cards do have some disadvantages. Lenders tend to minimize risks by keeping the cap low and by having a higher interest rate than premium or platinum cards. This does not mean that a young person cannot find a good deal. Low interest cards are available for most people and are obtained either from a bank or a lender that disposes of benefits in exchange for a lower rate.
Borrowers of all age should understand the conditions of their cards. Most credit cards have variable rates that can rise substantially depending on fluctuations in credit rating and market conditions. Many cards have substantial penalties for missed payments. Understand these risks and spend responsibly.