(MoneyWatch) My daughter is graduating from college this month. Like the responsible kid she is, she decided that she should apply for a credit card to make sure she could use her own plastic to pay for hotels and rental cars when she travels. She was turned down.
She has a job. She's incredibly financially responsible. She just has no credit history -- a problem shared by a good number of today's graduates, particularly once the Credit Card Act barred banks from peddling their plastic on campus to kids with no income or assets. The good news is that there are a number of credit cards that cater to people with limited credit histories, says Odysseas Papadimitriou, chief executive of the credit card shopping site Card Hub.
The five best, in his estimation, not only provide no-fee cards to new graduates, most also offer cash back and rewards. The flip side? The interest rates are high, so any kid that carries a balance will learn a costly lesson about borrowing to buy things you can't afford. Moreover, all credit card companies charge high penalty fees if you pay late. Some will allow you to charge purchases that exceed your credit limit, but they'll charge dearly for it. Make sure you read the terms and follow the rules.
Also, the Credit Card Act bars banks from giving credit to kids who have neither income nor assets. So even though these cards are geared to those without rich credit histories, they'll expect to see enough income on your application to cover charges up to your credit limit. Some, however, will consider assets -- oddly even student loans -- to be sufficient. Most will expect you to provide a student e-mail address on the application.
That said, here are Card Hub's top five credit cards for new graduates:
1. Capital One, Journey Student Rewards: It offers 1% cash back on all purchases and provides an additional 0.25% reward when you pay your bill on time. You can get the reward as either a check or an account credit. There's no annual fee, nor a limit on the amount of rewards you can earn in a year. But the interest rate is 19.8%.
2. Citi Dividend Platinum Select MasterCard for College Students: It offers 1% cash back on most purchases, but higher rewards on rotating categories of purchases and on gasoline and convenience store purchases. However, maximum rewards are limited to $300 a year. Interest rate varies based on your credit, going from 12.99% to 20.99%
3. Discover Open Road Card for Students: Has a complicated rewards program that pays 2% on the first $250 of gasoline and restaurant purchases in a month; and then pays 1% on purchases over $3,000 annually. Purchases below the $3,000 -- and not subject to the 2% rate -- earn 0.25%. Sheesh. I suppose checking your rewards balance can at least test your math skills. The interest rate varies from $12.99% to 18.99%.
4. Capital One Cash Rewards for Newcomers: Even high school graduates can apply for this card, which gives you 2% cash back on travel purchases and 1% on everything else -- the nice straightforward reward structure that Capital One favors. The downside? If you carry a balance, the interest rate on this card is a whopping 24.9%.
5. Orchard Bank Secured Card: If you can't qualify for any of the other cards, and no one will co-sign to help you qualify, consider the Orchard Bank secured card. Secured cards provide a credit limit that is equivalent to the amount you have on deposit with their bank. In other words, it's really not credit at all. But, it does help you establish a credit history that will allow you to get better credit in the future. There's no annual fee on the card for the first year. After that, they charge $35. (The best advice is to apply for another card that doesn't charge an annual fee before the year is up, since you'll hopefully have enough credit history for something better by then.) There's no cash-back rewards, but the interest rate is a more modest 7.99%.