Q: I am a recent college graduate with a full time job paying $50K a year. I go out to restaurants and bars. What's the best credit card for me?
If you found such a great job right out of school, I may have some cousins who'd like to go on a date with you. Seriously, though, it's a great time for you to build some great credit card habits while building up a cash reserve. Some rewards credit cards that fit your lifestyle can help you get some special benefits when you eat out or when you treat yourself to a vacation.
With no credit history, you may not yet have access to the industry's best rewards credit cards. However, you can start off with a credit card for limited credit that includes cash back rebates or other incentives. If you can get in the habit of using about a third of your card's available credit, then paying the balance off completely every time you get your statement, you can actually help to improve your credit score.
Many credit scoring algorithms reward you for keeping a credit utilization ratio of about 30 percent, and for making consistent, on-time payments. Over time, your existing credit card company may upgrade your rewards status, or you'll start seeing some pre-selected credit card offers based on your improved credit history. Until then, I'd recommend checking out some of these beginner-level credit card rewards programs:
Citi Forward® Card for College Students. Citi developed a rewards credit card for students and recent grads like you. Earn 5 ThankYou points for every dollar you spend at your favorite restaurants, as well as on books, movies and music. You may also be eligible for an APR reduction on purchases when using credit wisely. You can earn 100 ThankYou Points each billing period that you pay on time and stay under your credit line.
Chase Freedom. This darling of many credit card enthusiasts features no annual fee, 1 percent cash back on your purchases and each quarter you enroll you can earn 5 percent cash back on up to $1,500 in combined purchases within quarterly rotating categories such as restaurants, movie theaters, Starbucks and Amazon.com. Currently, this card has an offer of $100 bonus cash back after spending $500 in the first three months from account opening.
Fidelity Investment Rewards American Express Card. While we wouldn't normally recommend this account as a starter card, Fidelity's a great place to park the extra cash you're saving. Open a brokerage account with a $2,500 deposit, and you've got a good chance at earning access to one of the best cash back rewards cards on the market. This card was a 2011 Editor's Choice.
Build a strong credit history now, and you'll qualify for great mortgage rates when it's time for you to move out of your parents' place!
Correction, Jan. 17, 2012: According to John Ulzheimer, president of consumer education at SmartCredit.com and an expert on the FICO score, the ideal percentage of credit utilization is not 30 percent, but from 1 to 10 percent.
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