Credit Cards for No Credit History

How is credit history determined?

According to Experian, your credit history is determined using a range of factors that are included in a complex calculation. Your credit score derived from this calculation ranges between 300 – 850. A higher score indicates a higher level of confidence where you can meet repayment obligations. A lower score indicates that you are more likely to miss payments or default.

The most influential factors contributing to your credit score are the amount of debt you currently owe and your payment history.

No credit vs. bad credit – what is the difference?

Having no credit is different from having bad credit. If you have bad credit, this implies that you have not met past credit obligations.

With no credit, there is no record of you ever using credit. This lack of information can make it difficult for lenders to predict your ability to repay debt obligations.

In both instances, you can be seen as a risk to the lender. With bad credit, you’ve likely made some mistakes such as missing payments or going over your credit limit. With no credit, it’s difficult for lenders to make a judgment and this can lead to higher costs of borrowing.

Why is it important to establish your credit if you have no credit history?

Building credit with no credit history can be a challenge but it’s important to get started. A strong credit score can lower your cost of borrowing which can save you thousands of dollars, if not more in your lifetime. It can impact your ability to get a mortgage, rent an apartment and determine your insurance premiums.

How can I get a credit card for the first time?

If you’re looking to apply for a credit card for the first time, there are a few ways you can get started. It’s a good idea to review your credit report and evaluate your options. You may need to repay some debt, increase your income or build a better score to get approved. You can compare rates and apply for a credit card online.

When you have no credit history, some of these best options for applying for a credit card include:

• Secured credit card: These cards require an upfront deposit that is used as collateral if you miss a payment or default. The deposit is equal to the credit limit. For instance, if your credit limit is $500, you’ll need to pay a deposit of $500. Interest rates and fees can be high, but these cards can be a starting point if you are unable to get approval for an unsecured credit card.
• Using a co-signer: A co-signer acts as a second borrower on your credit card and is legally liable to pay your outstanding balance if you do not make payments.
• Retail credit cards: Store cards can have high-interest rates but it can also be easier to get approval as they are based on consumer loyalty.
• Student credit card: If you’re a college student, a student credit card can give you favorable credit terms with no fees. It can help you build your credit score while you’re in college.
• Unsecured credit cards: These credit cards do not require a cash deposit for approval. Your credit limit is based on your income and credit history. Some issuers don’t require a credit history but you’ll likely need to shop around as there are very few providers that allow this.

As you use your credit card and make monthly repayments on time, this will help you build your credit score and give you access to a wider range of borrowing options including unsecured credit cards with lower interest rates and fees.

The pros and cons of getting a credit card for the first time

If you’re looking to lower the cost of your future borrowing and build your credit history, then you might want to consider getting a credit card. There are pros and cons and it’s a good idea to consider both.

PROS

• Build your credit history: Good credit history can lower your insurance premiums, mortgage repayments and give you access to other forms of credit. This can help save money and improve your quality of life.
• Rewards programs: There are attractive rewards that can add up quickly with regular credit card usage.
• Security: Many credit cards give fraud protection services if your details get stolen or your card is misused.

CONS

• Interest rate and fees: When you’re first applying for a credit card, it’s unlikely that you’ll be accepted for the best ones in the market that have low rates and fees. Credit cards can have a high-cost relative to loans and other forms of borrowing. In addition, there can be annual fees, late payment fees, and other charges that apply.
• Debt: When you make a purchase using a credit card you are effectively going into debt until your balance is paid off. If you’re unable to make repayments or you’re only making the minimum, the debt can balloon out of control which can negatively impact your credit score.
• Overspending: If you don’t use your credit card responsibly, it can be easy to overspend and go over the limit.

What to look for when applying for a credit card for the first time

When applying for a credit card for the first time, ensure you shop around comparing rates and fees. Some fees to consider are late payment fees, foreign transaction fees, and annual fees. Issuers can also have reward programs such as cashback that can save money on your monthly expenses.

If you carry your balance forward to the next month, you’ll have interest charges added on to your next payment. Credit cards are known for having high-interest rates. As interest accrues month on month, this can quickly spiral out of control. Be mindful of signing up for a credit card that will be affordable for you.

What do I need to apply for a credit card if I have no credit history?

When applying for a credit card, you’ll need to meet certain requirements to obtain approval. Some of these requirements include:

• Be at least 21 years old: If you are under 21, you will likely need parental permission and proof of income.
• Source of income: To qualify for a credit card you’ll need to make enough money to pay your credit card off every month.
• Social security number: You’ll need your social security number before applying.

When you apply for a credit card, a hard credit inquiry is made which temporarily dings your credit score. To avoid doing multiple hard credit inquiries, certain card issuers allow you to prequalify for a credit card.

When you have no credit history, secured credit cards, student credit cards, store credit cards, or even using a co-signer can help you get approval.

What to do if your credit card application is denied

If your credit card application is rejected, don’t give up yet. Ask your lender why your application was turned down. It may require you to take action in improving your credit history, having a higher income, or repaying other debt you owe first.

Monitor your credit report and ensure everything is accurate. If mistakes do appear, be sure to correct them as quickly as you can.

In summary

It can be a challenge to get started with building a credit history as many credit card providers require a track record to make a judgment on your creditworthiness. However, it’s important to start as soon as you can, as a strong credit history can lower the cost of borrowing, saving you money over the long run.

Ensuring you pay your monthly payments on time will build up your credit score. Plus, you could be eligible for various rewards and perks. If you’re having difficulty getting approved, there are various alternatives such as a secured credit card, student credit card, or retail credit card which can be approved with fewer requirements.

However, it’s important to note that credit cards have notoriously high-interest rates that compound over time if balances are carried forward month after month. If not handled with care, this can lead you further into debt, worsening your credit score.