We received a great Comment earlier this week from Benjamin, a recent graduate of Texas’ finest Agricultural & Mechanical university. Benjamin asked us for some advice on establishing credit and what cards to get. I thought this topic would be useful for Middle Age Miles readers – either actual middle-agers like ourselves who may have kids who have recently graduated from college or will soon graduate, or readers who may be younger and just starting out – so I wanted to share our thoughts with everyone.
Here’s Benjamin’s reader question:
I’m looking to get my first [credit card], where should I start? While building credit (because I have none) is important, so are rewards. I love to travel and find myself taking many spontaneous cross country adventures, sometimes by myself. However, since I will be living on my own for the first time, rent and grocery costs are going to be my primary expense. What is your suggestion for use of [credit cards]? I was looking at starting an American Airlines rewards [card] as well as one that gave me cash back. Then again, I do not know since my needs are quite simple.
The first thing I told Benjamin is that, if he hasn’t done it already, he should definitely read the Middle Age Miles article, Credit Card Basics (under “How to Get Started” on the Middle Age Miles main menu). And if he has some more time, he could also read the next 3 articles under “How to Get Started” too.
Beyond that, I gave some more thought to Benjamin’s question. At Middle Age Miles, we are huge proponents of getting multiple rewards-earning credit cards to earn big sign-up bonuses of points, give ourselves lots of bonus categories where we can maximize points earning on our ongoing spend, and redeem for great travel awards. This is a great strategy for middle-aged milers who have solid incomes and/or wealth. And we think it’s also a very rewarding strategy for many people who are younger and have stable jobs and some good-to-great credit history.
But for a recent college graduate with no credit history (and no savings, and perhaps in a “transitional” job), diving head-first into credit cards and rewards isn’t a good idea at all. Our hero is going to have low expenses, so he’s not going to be able to meet substantial minimum spend requirements, and he’s also not going to amass enough points for meaningful rewards (unless he engages in a lot of “inorganic” spend, which is quite another story). He’s going to need to seek out cards he can actually be approved for, despite having a thin credit history. He also doesn’t need to be saddled with annual fees, given that he’s on a tight budget.
Fortunately, there are some good options for our recent-college-grad hero, with no annual fee and very solid cash-back earning. I’ll go out on a limb and guess that our college grad who follows the strategy we recommend here will be getting a better % return on his spend than 90+% of Americans.
With that background, here’s our response to Benjamin:
In your situation – living on your own for the first time, building credit from the ground up – I think that getting one or two no-annual-fee cash-back cards to start off would be a good choice. More specifically, I think good choices for you would be to get the Uber Visa card from Barclays and the Double Cash card from Citi. This is exactly the plan that I outline in the Middle Age Miles article, “Can You Beat This? A Simple Cash-Back Credit Card Strategy“. You can find that article under “How to Get Started” on the main menu of Middle Age Miles. The article gives you a rundown of the benefits of each card and how much cash back you’ll earn, and it also tells you exactly what types of spend to put on each card.
There are several reasons I think this approach makes sense for you, including:
* I think you should be able to get approved for these cards, even with little to no credit history
* These are both no-annual-fee cards. Almost all of the “rewards” cards have an annual fee in the neighborhood of $100/year (and higher for some cards), and I don’t think it’s necessary for you to spend that money at this point. What you need most now is to get used to having and using your own cards (and paying them off in full each month), and establishing some credit history.
* It probably makes sense for you to build credit with no more than 2 cards at the start. Keep it simple for now.
* The cash back you’ll get from the combination of these 2 cards is very good. It would be hard to do much better in terms of % return on your spend with 2 “rewards” cards anyway. (Also, “rewards” cards work best when you’re spending higher amounts than when your needs are simple and spend is low.) And you can use cash back however you like.
I’d say to get these cards and give everything about a year. If, after that time, you’ve gotten comfortable with handling the cards (including paying them off every month) and you want to jump into the “rewards” card game to get sign-up bonuses and points to travel, I’ll be very happy to help you do that. You mentioned an AA card in your Comment on the website, but that’s not where we’d want to start. The best place to start would be with the more flexible points like Chase, Amex or Citi. We would probably want to start with Chase cards for strategic reasons. But we can talk more about that later.
Another thing that I’d suggest that you do now is set up a free online account with Credit Karma. That will allow you to monitor your credit score to make sure you’re staying on the right path in terms of building your credit.
Right now, the Uber Visa card has a sign-up bonus of $100 after spending $500 within the first 90 days after you are approved for the card. Here’s a link to the information page, and you can apply from there as well: https://cards.barclaycardus.com/banking/cards/uber-visa-card/
The Citi Double Cash card doesn’t have a sign-up bonus right now. It usually doesn’t have one…. Here is a link to the information/application page for this card: https://www.citi.com/credit-cards/credit-card-details/citi.action?ID=citi-double-cash-credit-card
Please let me know if you have questions. This is a big step in adulting and I know it can be confusing and overwhelming when you’re starting out…. And let me know what you decide to do and how it goes! …
[For those who are wondering – No, these are not referral links for the credit cards, and we don’t have any relationship with Barclays or Citi other than holding a few of their cards (and no relationship with Credit Karma either, for that matter.]
We certainly wish Benjamin and all other recent college graduates the best – with your credit, your career, your personal life, and your travels!
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