When I have nothing better to do, I lurk around in credit-help forums to see what kind of problems people face and the typical advice that’s being dished out.
Most are sensible, but some show lack of experience and frankly, bad. Sometimes such advice is even the most popular for a poster’s question. One very popular question is from people who are trying to build a credit history – mostly students. Eligible to get a credit card, which one to pick?
The most typical advice is some card with rewards. Here are some typical responses gathered from an actual forum for a good first credit card:
Capital One Student Journey
All these cards have some combination of rewards that might appeal to different kinds of people based on their spending habits.
Yet, your first card should be picked with a lot of care and caution. Why? Because you start building your credit history from this point onwards (at least the most significant portion of it) and your oldest card matters quite a bit on how your credit score is calculated. That’s the reason you are advised to not close your oldest card, which is very good advice!
What’s wrong with the above cards?
Before I answer that question, let me ask you a question. If you have a credit history of at least 15 years, do you still use your first credit card? Is it even active?
For a guy starting out today, his needs, income, status and spending habits are going to change in the coming years. And so will his credit card of choice! When that happens, if you stop using a card long enough, most big banks are going to close it for inactivity. And when your first card is closed, it is going to affect your credit score since your history is based on that (most typical).
So what’s the advice here?
Go with a card issued by a credit union. They might not have the best rewards, but it will be worth it in the long run. Why? Because for-members credit unions are less likely to close a card for inactivity than for-shareholders-profit banks.
One of the principles of this blog is not to dish out advice willy-nilly. I try to talk about personal experiences that’s worked for me, not what I’ve heard or gleaned from forums!
I still have my first (unsecured) credit card! And yes it is still active, and no I don’t use it! My first card was from a credit union. During the early days I used it for everything and that was pretty much my only card! The rewards were horrible, but that didn’t bother me. I was simply using it as a cash substitute paying it off in full at the end of every month.
But as I grew older, my choices and spending habits changed. I added a few more cards to my wallet and slowly stopped using my first card altogether. I never closed it, but I never used it either.
Like clockwork, my credit union would renew my card year after year! Can you imagine that happening if I had remained with Bank of America or some other big bank? I’ll bet they would close it as soon as they figure out I’m not useful to them any more. Sure not all credit unions are the same, but chances are a credit union would be more understanding than a bank. I’d gamble on that.
For this one reason, I would advice someone looking to getting a credit card to get one from a credit union and not a bank. Don’t chase rewards when you are just starting out. The first credit card you pick is very special and factors heavily on how your credit scores are calculated. Choose with care.
I know this advice is unconventional, but then so is my blog.