If you're a college student or a young adult, building credit is a smart money move. But finding a credit card with reasonable terms that will help you build credit could be expensive. Many of the cards marketed to young people with little or no credit carry high interest rates and steep setup and annual fees.
Consider the Matrix Card by Discover from Continental Finance, which has a $75 annual fee, plus a $12 monthly fee that kicks in after the first year, for total fees of $219 beginning in the second year. That's a significant hit for a card that comes with an initial credit limit of only $300. What's more, its 29.99 percent APR is among the higher ones we've seen. Several First Premier cards eclipsed that rate, charging a 36 percent APR.
The smarter option if you have little or no credit is a secured card, though many also carry exorbitant fees. The Capital One Secured MasterCard is better than most. Its annual fee is $29 and the late fee is low (no more than $19); the APR is currently 22.9 percent. The company also reports monthly to all three major credit bureaus--Equifax, Experian, and Transunion--which helps you build credit. You can get an initial credit limit of $200 by putting down a refundable deposit of as little as $49, depending on your creditworthiness. After you establish a good payment history over 12 to 18 months, you can ask Capital One or another bank for a standard credit card.
For more advice, read this Q&A on opening and closing a credit card.
Tip: If you're in college and have a stronger credit history, you may be eligible for a student credit card with no annual fee.