So what can you do to start your borrowing history? Perhaps the best answer is what's
called a secured credit card.
You may have heard of this type of credit card in the past without knowing: It requires
you to make a small down payment - usually of a few hundred dollars - to the lender
issuing the card, but does not come with a credit check. The up-front fee is used
to establish your account's credit limit, so if you put down $300, the maximum
you will be able to borrow on it will be $300.
How a secured card helps you build your credit
Simply put, this type of card is a great way to establish your borrowing history.
It will serve as a type of "credit training wheels" so that you can learn how to
manage a credit card responsibly. This way, by making several months' worth
of on-time payments and keeping your borrowing to a minimum, you will be able to
show lenders that you can handle this type of financing through diligent work.
Over time, regular usage and repayment of a secured credit card offer can help you
qualify for credit cards for average credit which have a wide range of benefits
not available with a secured credit cars.
Drawbacks of credit cards for those with no credit history
Of course, because these accounts require no credit check, and are designed specifically
for people who either have never borrowed before or those who only qualify for bad
credit credit cards because of account issues, lenders need to hedge their
While they will extend credit to those with troubled or no borrowing histories,
they also increase their protection by charging higher interest rates and applying
larger fees than you might have seen on another kind of credit card application.
Because of this, and coupled with the relatively low credit limits these cards typically
carry, you will likely need to manage your account carefully, or else you
could run into high costs that not only damage your standing, but also take a big
chunk out of your monthly income.
If a major goal is to later qualify for better credit cards offers, you should focus
on applications that report your status to the credit monitoring bureaus.
What about prepaid cards?
prepaid cards are also advertised for those with no credit history, but
the problem with these accounts is that they're not credit cards.
As such, a user doesn't tap credit and therefore cannot build a borrowing history.
While prepaid cards can be a great way to manage your money, you should check for
actual secured credit card applications online to establish your score.
When you've been using your card for a while
After you've been using your secured card wisely for a number of months - making
payments on time, keeping balances low from one month to the next, and so forth
- you will likely be ready to graduate to a better credit card deal.
Reviewing your borrowing habits over the last few months, as well as your overall
finances, will help you determine your credit standing which in turn will help guide
you to the best credit cards available to you given your newfound stronger credit
If you are not sure of your credit standing.
‘Fair’ or ‘average’ credit is said to start with a credit score of 620. If
you are not sure where you stand, it may be work your while to check your credit.
If you think you can get approved for one, check out credit card applications for
average credit which come with may perks not available on prepaid or secured credit
cards. These include 0% introductory APR, credit card balance transfers, rewards
programs and more.
Tips on applying for credit cards.
Supply information that is accurate and current when you complete the credit card
form. Be honest. Since online credit card applications are turned around relatively
quickly, there is no need to submit multiple applications simultaneously.
In fact, it could result in a rejection for the credit card offer you want most.
For more on this topic, see out article:
How to fill out credit card applications.