Best Credit Cards for Young Adults for 2021| The Ascent - Motley Fool

How to pick the best credit card as a young adult

As a young adult, choosing the best credit card starts with figuring out which cards you can qualify for.

There are a lot of credit cards out there, but the ones you can get depends on your credit score. Your credit score is essentially a measure of how likely you are to repay money you borrow. Credit card companies check this score when you apply for a card with them.

Most young adults are new to credit, so their card options are more limited. If you've never had a credit card or loan before, or you've had one for less than a year, here are the types of starter credit cards to look at:

Secured credit cards: Secured credit cards require a refundable security deposit to open. The deposit is often equal to the credit limit, or the maximum amount you can spend on the secured card. Because cardholders pay a deposit, the card issuer's not at risk if someone doesn't pay their bill, meaning it can be more flexible about who it approves.

Learn more: What Is a Secured Credit Card?

Petal credit cards: Petal is one of the more unique credit card issuers. When you apply for a Petal card, it gives you the option of connecting your bank account during the application process. Even if you've never used credit before, Petal can review your banking history instead and possibly approve you for a card.

Student credit cards: A student credit card is one designed specifically for college students. These cards often have rewards and student-friendly benefits, such as credit score monitoring and educational content to learn more about credit. They also don't require a credit history to open. Unlike a secured card, a student card doesn't require a security deposit. That's a notable edge if you're choosing between a student credit card or a secured credit card.

If you've been having trouble finding a card you're eligible for, make sure to review our guide to the easiest credit cards to get.

How to pick the best rewards credit card

We've covered what to look for if you're trying to build credit. But what if you've already had a credit card for a year or two, and now you're looking for an upgrade?

In this situation, it's time to start shopping for rewards credit cards. These earn credit card rewards on your purchases, such as cash back that you can redeem as a deposit to your bank account or a statement credit on your credit card bill. There are also travel credit cards, which earn points you can redeem for travel purchases.

If you're interested in getting a rewards card, here's what to do:

1. Check your credit score

Use a free tool online to find out your credit score. Discover® Credit Scorecard and Experian CreditWorks℠ Basic are two good options.

The best rewards credit cards are aimed at consumers who have good credit, meaning a credit score of 670 or higher. If your credit score isn't quite there yet, you may want to wait a little longer before applying for a new credit card.

2. Decide which type of rewards credit card you want

The two most popular types of rewards cards are cash back cards and travel rewards cards. Both offer plenty of great credit cards, so it all depends on which you like more.

Cash back is easy to use and can work for basically anyone. Once you've earned cash rewards, you can apply them to your credit card bill as a statement credit. Travel rewards can be a bit more complicated, but they're valuable if you like to travel often. They often have useful perks and don't charge a foreign transaction fee, which helps you save on international travel purchases.

3. Start comparing cards

Check out credit card reviews for the type of card you want to see what your options are. Here are the main features to look at as you compare cards:

• Annual fee: The annual cost of the credit card. Annual fees can range from $0 to over $500. If you want to avoid an annual fee, there are many no annual fee credit cards available.
• Rewards: The rewards a credit card earns per $1 on eligible purchases. Some rewards cards offer one flat rate across all spending categories. Others offer a higher rate in select bonus categories.
• Sign-up bonus: An introductory welcome bonus for new cardholders, such as $200 if you spend $500 in the first three months. Sign-up bonuses are a great way to get extra value from a new credit card.

What's the minimum age to get a credit card?

The minimum age for a credit card is 18 to open your own account. Those who are under 18 can get a credit card if a parent or another relative adds them as an authorized user, but they must be 18 before they can get their own account as a primary cardholder.

For applicants who are under 21, credit card issuers often require proof of income. If you're in the 18-20 age range and you're going to apply for a credit card, be prepared to verify how much you make. In some cases, it's also possible for college students to find a credit card with no income or little income.

Tips on building credit as a young adult

One of the benefits of having a credit card is that it can help you build credit, which brings all sorts of financial perks. Better credit can be the difference in qualifying for an apartment you want, it gets you lower interest rates on loans, and in most states, it even saves you money on car insurance. To top it off, good to excellent credit qualifies you for the most feature-packed credit cards.

Whether your credit improves all depends on how you use your credit card. If you follow credit-friendly habits, your credit score will go up. But if you miss payments or spend too much, your credit could take a hit.

The good news is that it's not difficult to build credit fast. Here are all the tips you need to work your way to an excellent credit score and avoid credit card debt:

Don't overspend. A common reason consumers get in trouble with credit cards is they spend more than they can afford. It can be tempting to make more impulse purchases and pay them back later, but you'll be charged interest every month. If you always pay your bill in full, you'll avoid interest charges.

When you get your credit card, give yourself a firm spending limit. A good rule of thumb is to always keep your balance to 30% or less of your credit limit. For example, if your credit limit is $1,000, you'd keep the balance to $300 or less. This is considered a good credit utilization ratio, which is a measure of how much of your credit you're using. Keeping a low credit utilization improves your credit score.

Pay your credit card bill on time. The most important part of building credit is your payment history. On-time credit card payments are good. Late payments are bad, although they don't count against your credit score until they're 30 days past due (your card issuer can charge you a late fee as soon as you miss a payment, though).

Make a monthly reminder for your credit card's due date or set up automatic payments. As more on-time payments get added to your credit history, your credit score will go up.

Stick with it. There's no secret formula for building credit. It's really just about building a few good financial habits.

All you need to do is pay your credit card on time and avoid overspending. After six months to a year of this, you'll start to see positive results. Within two to three years, you'll most likely be at or near a good credit score.

Learn more: What First-Time Credit Card Users Need to Know

Best Credit Cards for Young Adults for 2021| The Ascent - Motley Fool