Best first credit cards for new users
TAKING out a credit card is a great way to build up or improve a credit score, not to mention a great line to extra cash should an emergency strike.
Although there are many different cards out there finding the right one can be tricky, especially for those with no or low credit ratings.
But fear not, in this guide we list some of the best cards for first timers, noting some of their advantages and drawbacks. We'll also offer some advice on the application process and what to do in the event of a rejection.
Before we get into all that though, it's good to have a clear idea of how credit cards actually operate so that applicants know what they are getting into and how to manage their account so they don't damage their credit rating further. So let's start by going over some of the basics.
Credit cards 101
A credit card can be used to buy things in the same way as a debit card. However, there is one significant difference to note. Instead of money directly debiting a bank account, as happens with debit cards, credit card users borrow money from a provider.
Each month the user will be sent a statement listing that month's transactions, which can be paid off immediately or gradually over a period of time.
General terms and conditions to watch out for
All credit cards are subject to certain stipulations, which vary depending on the type of card and the provider, but generally include:
- A credit limit - this could be anything from a few hundred to a few thousand pounds. The exact amount tends to be determined by a user's credit score; generally, first timers will be given a slightly lower limit given that they are fairly new to credit.
- An APR (annual percentage rate), or interest rate - this is charged to outstanding balances. This rate is usually quite high, the average is around 18% but in some cases it can go as high as 30%. Unfortunately, again due insufficient credit histories, newcomers tend to get stung with higher APRs. However, if the balance of a card is paid off in full every month then cardholders avoid paying any interest whatsoever.
- A minimum monthly repayment amount - on average this is set at around 2 to 5% of the card's overall balance. If the repayment amount is missed or late then penalty fees may be issued.
Some cards offer special deals and introductory offers which see these conditions applied differently. For instance, with some cards monthly interest rates can be reduced, or suspended completely, for a set period of time.
There are many different types of credit cards out there, from ones offering 0% interest on balance transfers to those promising lavish reward schemes. But once again the best deals are usually only on offer to those with impeccable credit records.
Generally speaking, first time applicants are more likely to get approved for cards aimed at people with low credit ratings, so-called credit builder cards.
So let's look at these in more detail.
Credit builder cards
These are specifically geared towards those wishing to rebuild or build up their credit score. This doesn't necessarily mean anyone can get one but these cards do have a more lax set of eligibility criteria so approval chances are higher for first time applications and even those who've been rejected by other providers.
Here's a short list of some of the best card deals currently available:
The sole purpose of these cards is to act as a ladder to a better credit rating. They do this by starting people off with low credit limits, which increase overtime as long as cardholders prove themselves with good account management.
The aqua range of cards typically start cardholders off with a credit limit between £250 and £1,200 with the promise to increase this on their fourth statement should they meet monthly payments and stay within their credit limits.
While Argos credit card customers can get increases on their card limit every five months up to the amount of £4,000, for similarly good behaviour.
Unfortunately though these cards tend to come without any perks such as 0% interest periods, although there are a few exceptions.
For instance, Barclaycard's Initial credit card comes with 0% interest on purchases for the first three months.
aqua also offer some additional benefits. Their Reward card offers 0.5% cashback on all purchases and no fees on purchases made abroad.
In addition, all aqua cards now come with a free credit checker facility; meaning customers have unlimited access to their credit reports so they can keep track of their progress.
As can be seen from the cards listed above, one of the big downsides with credit builder cards is that they come with higher interest rates. However, these do vary between providers, with some offering lower rates than others and some promising to reduce the interest rate overtime.
The aqua Advance card, for example, offers cardholders the chance to gradually reduce their interest rate to 19.9% APR, again as a reward for successful account management.
Another benefit with credit builder cards is that some providers even offer credit to those who've had trouble with debt in the past.
For instance, the Capital One Classic card is available to those who've had County Court Judgements against them and defaults (as long as they have not been declared bankrupt in the past 12 months).
To see more credit card offers visit our main comparison tool located here.
Alternatives: apply with your bank
For those put off by the high interest rates and limited perks available with credit builder cards there is an alternative option - applying for a credit card with their current bank account provider.
As they already have access to their financial records and can more easily assess whether they are a risk, they may be more open to approving them for a credit card.
But obviously, this is only advisable to those who have a clean banking history. Those who've mismanaged their account or gone into debt are likely to be rejected despite the fact they have an existing financial relationship.
The application process
Finally, let's take a quick look at the application process.
Most credit card applications can now be made online, via electronic forms on the provider's website.
Once the application is completed and sent, first time credit card applicants will have to wait for their request to be assessed. Check here for how long an application can take.
Acceptance: Once accepted, first time applicants should be careful to manage their account well in order to improve their credit rating.
In the first instance, that should mean setting up a direct debit to ensure that the minimum repayment is made to the credit card every month. For more tips on this visit our full guide here.
Rejection: However, be aware that a fairly high proportion of applications are rejected by providers.
If an application is rejected you have the right to ask the provider why you weren't accepted. If the rejection occurred because of information in a credit reference agency file, you're also entitled to know which agency that was and can contact them directly to access your credit report.
It's also worth noting that lenders can see credit searches carried out when you make a credit card application and that these can negatively affect future applications.
For this reason, those with rejected applications can increase their chances of having an application accepted in the future by waiting at least three months between applications, it may also be worth using this time to look at other ways to improve a credit rating first.
We've listed some strategies for improving a credit rating in this guide.