Picking the Right Credit Card

As the average graduate’s debt suggests (scarily nearly $3,000), financial institutions are more than happy to hand over credit cards when you're in college, mostly because they assume that rich, tuition-paying parents can back you up. Ironically, now that you’re graduated and employed, it’s a bit harder to convince the lenders of the world to cover your late night IHOP

binges. For those of us that no longer have the luxury of a student e-mail address, getting a card is going takes a little more leg work. Here's how to do it.

Why is it so hard to get credit cards now that you’re out of school?

Credit card companies use two main factors to decide whether or not to issue someone a card: income and credit history.

Although you had neither of these while in college, obtaining a credit card was as easy as stopping by one of the ubiquitous application tables, filling in your Social, and calling it a day. Heck, you even got a free T-shirt or Subway sandwich out of it.

Credit card companies jumped at the chance to issue you a card because they knew your parents—who likely had respectable incomes and established credit histories—would be there to bail you out if you got in over your head.

Now that you’re out of school, you still don’t have much of a credit history, your starting salary is fairly meager, and your parents are less willing to serve as a safety net. Add it all up, and you’re just not a good credit risk.

Daunting as it may seem, getting a new credit card is a necessity in this day and age, and it's very doable. Just choose a strategy, and follow through with it.

Strategy 1 – Get a credit card while still in college, and hold on to it for dear life.

For those of you still in college, the easiest solution to this problem is to get a card before graduation, making the matter moot. Since credit cards take a minimum of two years to expire, you’re grandfathered in for at least 24 months, and assuming you make all your payments, you will have little problem renewing the card.

Although there’s no such thing as a new-grad-specific credit card, there are dozens of student-specific cards out there. Student credit cards are a breeze to get, and are no different than non-student cards. One of my favorites, the Citi Dividend Platinum Select Card for College Students (now that’s a mouthful), has all the same features of the Citi Dividend Platinum Card, and doesn’t even say “College Student” anywhere on the front. In addition to a low interest rate, the CDPSCCS rewards you with a cash back rebate of 1% on all your purchases (and 2% on groceries and gas).

The beauty of the college-specific card is that, unlike your school library and gym access, it doesn’t stop working after graduation. You can continue using the card for the life of the contract, and by the time it expires you’ll have a respectable credit history

Strategy 2 – Find the perfect card and hope your application is accepted.

For those of you already out of college, it’s just a matter of knowing what you want, and going to the right place.

The easiest course of action is to inquire with your bank, and see what they have to offer. You’ve been loyal customers for years, and they’ll likely reward you with some form of plastic cash. Bank of America, Washington Mutual, Wells Fargo, and Citi all offer a laughable number of credit cards.

When deciding on a card, there are three general types to look for: low interest, rewards, cash back, and airline miles.

Low Interest

In many ways, the interest rate should be irrelevant because you should always pay your bill in full every month, But for those of you content to make the minimum payment every month, the most important thing you can look for in a card is a low interest rate. When it comes to credit cards, 7% is about the best you can do.

A common practice is to offer 0% interest for the first year. Be advised that once the 12-month honeymoon ends, a double-digit rate hike can be expected. Bank of America offers a great card with 0% interest for 12 months and even gives you cash back.

Find out what paying the minimum really costs you.

Reward/Cash Back

Cash back credit cards have been a cornerstone of the Pekema family since the dawn of time. Passed down from generation to generation, I’m now the proud owner of an American Express Blue Cash card. It pays me back 5% for my purchases at grocery stores, gas stations, and drug stores, and 1.5% on all others (after minimums are met). Needless to say, the $50 checks I receive every few months are a day-maker.

Amazon.com offers a card similar in concept (Amazon.com gift cards instead of cash) that also gets you $30 off a purchase from their site. Think of it as the new Macy’s card.

Another highly rated card for people who like to stay at nice hotels is the American Express Starwoods card. Some consultants from Bain ran some numbers and claim it's the best option for people who travel a lot. Then again, they get to rack up crazy points paying for flights and then getting reimbursed by the company. With all of these cards, if you don't spend very much the rewards will be pretty negligible.

Airline Miles

I’ve never been a big fan of credit cards charging an annual fee, but in the case of airline mileage cards, $80 a year is well worth the potential for free tickets. (That said, if you don't really travel much, get something with rewards that are relevant to your life.)

Miles cards pretty much all work the same way: charge purchases, get “miles,” and redeem miles for airline flights. It’s no big secret. The Chase Travel Plus Visa is one example of the dozens of miles card options out there. If you’re loyal to a specific airline, finding a card associated with it makes your flights and credit card purchases doubly rewarding.

Where to Look for Credit Cards

Use CardRatings.com to compare over 500 cards that are conveniently sorted into categories like "Low Ongoing Rate," Cards for No/Poor Credit," "Cash Back Rewards," and "Gas Rebate Cards." Also, ask friends, family, and coworkers about good cards that have worked for them.

Once you get one, hold onto it and don't cancel even if it just sits in your wallet and never gets swiped. Also, request a credit line increase after six months. Sure, the initial credit line might be a little skimpy, but after a few months of on-time payments, you should be able to get it bumped up.

Want a ridiculous credit card? Check out these bad boys.

Credit Card Caveats

Credit cards should never be used as a way to get long-term loans—the interest rates that credit card companies offer simply aren't competitive. Always pay your bill in full, and read more about building and maintaining credit so you don't fall into any traps. Also, applying for numerous credit cards in a short period of time can adversely affect your credit score, so take it slow and steady. Finally, beware of the allure of store credit cards, which can actually hurt your credit score. They are the easiest cards to get, and thus the most dangerous. If you legitimately buy your entire wardrobe at J. Crew, then the savings will be worth getting the card. But be careful about signing up for cards you'll forget about.