Dear Credit Card Adviser,
I've never handled a credit card before. I'm used to using a debit card just so I know how much money I can spend. I need to build my credit, but I'm scared to pick which credit card company to use since I'm a newbie. If you can help, I would really appreciate it.
-- Sharlet

Dear Sharlet,
Don't be nervous. Paying on time each month and lightly spending on your new credit card will help you build credit. You can even pay your balance in full each month and still improve your credit score. Your score won't reward you for paying interest charges.

Since you won't build a better credit history with one issuer over another, I'd focus more on the costs of the cards you're comparing.

Based on your question, it sounds like you have little to no credit history. If that's the case, it means you won't be getting approved for cards requiring "good" credit. To get an idea of where your credit score stands, try our FICO score estimator -- it's free.

For now, you'll likely have to get a card that is priced for higher-risk consumers. Cards in this credit category tend to have lower credit limits, high interest rates and even annual fees. I would look for a card that reports to the three major credit bureaus, has no or low fees and a reasonable interest rate in case you carry a balance from one month to the next. Here is an overview of the card types available to people with limited or no credit history.

  • Store or gas credit cards. These cards tend to have high interest rates and low credit limits, but are easier to qualify for than general-purpose credit cards. Unless they carry the logo of a card network such as Visa or MasterCard, however, these cards can only be used at that particular merchant or group of merchants.
  • Secured credit cards. These cards require a cash deposit as collateral in case you default, but you can often graduate to an unsecured card after a given period and get your deposit refunded at that point. On the downside, secured credit cards come with an annual fee, and the deposit amount usually determines the credit limit. Some secured cards charge other upfront fees as well.
  • "Bad" credit unsecured cards. These cards don't require a deposit, but they tend to charge high interest rates, annual fees and other upfront fees in some cases. Make sure to read the fine print.
  • Prepaid "credit" cards. Prepaid cards are actually debit cards, not credit cards. That is, you can't revolve a balance on these cards. Many of the cards that have a "credit builder" feature don't report to the major credit reporting agencies