When you have no credit, it may seem impossible that there is a lender out there that would approve you. Lenders use your credit history to see how well you’ve managed your past credit obligations. How do you get that credit when you don’t have credit to begin with? This can certainly be frustrating, but most people run into this dilemma at some point. Fortunately, it’s not as bad as it may seem.
How Do I Get a Credit Card With Credit?
Secured credit cards are actually credit cards for those with no credit. These are specifically designed to rebuild credit scores or to build credit history. Student credit cards are also a great option for those just getting started, especially young consumers. Another option is to ask a someone with good credit to add you as an authorized user.
Take a look at these options so you can determine the first credit card that is best for you. However, instead of assuming you don’t have a credit score, be sure to check yours anyway. You should have a score if any of your accounts—including student loans—have reported this information to the major credit reporting agencies at any time in the last six months. Credit.com gives you the opportunity to check two of your credit scores every 14 days for free.
What Is a Secured Credit Card?
A secured credit card works very similarly to a traditional credit card. The difference is that you make a cash deposit when you open the account in order to “secure” the card. Whatever the amount of the cash deposit was is equal to the credit limit, and this acts as collateral, minimizing the bank’s risk if you don’t pay the bill. As an example, if you were to deposit $1,000 for a secured card, your credit limit would be equal to $1,000. Most secured cards do not require a large deposit and can be opened with as little as $200.
What Should I Look for in a Secured Credit Card?
If your purpose for opening a secured credit card is to establish credit, there are some things you should be aware of first. For one, secured cards often have high interest rates in addition to annual fees, so this should not be a long-term plan. Your goal with a secured card should be to establish and build good credit, and after this has been accomplished, you’ll want to change to a traditional credit card that offers lower interest rates and better terms.
In addition, not all secured credit card issuers actually report to all three of the major credit reporting agencies. You will want to make sure the credit card is reported to Equifax, Experian, and TransUnion. This way you’ll get credit for responsibly managing your account. If it’s not showing up in your credit reports, it won’t make a difference on your credit score.
What Is a Student Credit Card?
Lots of big credit card issuers offer starter cards that are specifically geared toward students. Unlike secured credit cards, these cards are usually unsecured, so they don’t need you to make a deposit as collateral. However, they do come with fairly low credit limits; this way, new cardholders won’t find themselves in too much trouble from overspending. You may need some help qualifying if you are a student looking for a credit card. According to the Credit CARD Act of 2009, anyone who is under 21 must be able to demonstrate their ability to repay the borrowed amount (with some sort of income) or they must have a willing co-signer in order to get approved for a credit card.
What Should I Look for in a Student Credit Card?
Remember, your purpose is to build credit, so a no-frills card is best. Issuers want to establish financial relationships with those people that are just entering the marketplace, so many student credit cards offer no annual fee cards in addition to competitive annual percentage rates (APRs). Some of these cards even offer rewards. If credit card rewards sound good to you, think about getting a card that pays you for smart spending habits.
How Do I Use My First Credit Card Responsibly?
You’ll need to follow these two important rules to make sure you build good credit:
- Make your monthly payments on time, every time. Because 35% of your credit score is determined by your payment history, late or missing payments can certainly hurt your credit standing. You need to make your payments on time, every time and with no exceptions.
- Keep your balance as low as possible. A large portion of your credit score factors into the percentage of your balance as compared to your credit limit on any of your credit cards, which is often referred to as revolving utilization. The lower your revolving utilization is, the better your credit score will be, so this means you will want to keep your balances as low as possible. Just remember that student credit cards and secured cards usually have very low credit limits, and even a balance of only a few hundred dollars can have a negative impact on your credit scores. In order to earn the most credit score points possible, limit your credit card spending to 10% of your credit limit at the most. For example, with a credit limit of $1,000, you should keep your balance from going over $100. Even though you may pay the balance off every month, you don’t want the balance at any one time to go over $100 if your main goal is to build your credit.
What’s an Authorized User?
There is one more option when it comes to getting a credit card even though you have no credit. Most issuers will offer their credit cardholders the option of adding an authorized user to their credit card account. This authorized user will get their own card but is not actually responsible for paying the bills. This is the responsibility of the primary credit cardholder. As an authorized user, you can build credit since the account ought to appear on your credit report. Just like secured credit cards, you should make sure the issuer reports authorized users to the credit bureaus. If they do, you will receive credit for any of the good information that is associated with that account.