It’s a classic dilemma. You can’t build a credit history and get a credit score without a source of credit, but how do you get a source of credit without a credit history?
If you don’t have a credit score to assess, you’ll have to give lenders a different method of assurance that you won’t default on your payments. Here are a few tips to help you assure lenders and acquire a proper starter credit card.
1. Be Employed – Would you extend credit to anyone if they had no income sources to use for repayment? Credit card issuers probably won’t, either. If you can’t display a steady income, you’ll have to show a lender how you plan to repay your credit card balances each month.
Without a credit history, your income will likely dictate your credit limit and the type of cards available to you. You aren’t likely to get a high limit or cards with many rewards or perks to start with.
2. Consider a Student Credit Card – Credit card issuers offer special cards for students, realizing that students aren’t likely to have significant income. They’re designed to allow students to build credit. Interest rates will be higher, but that’s not relevant if you pay off your balance at the end of each month.
Some student cards offer rewards, and many offer the chance to upgrade to a standard credit card after making several on-time payments.
3. Look into Store Cards – If you frequently shop at a particular retailer that has a store credit card, you can apply for a card that’s good for purchases only at that retailer. Store-specific cards are often easier to get, but you must take fees and relative interest rates into account.
A gas-station-specific card is a good starting point – most people buy gas and it’s harder to rack up excessive charges there (harder, not impossible).
4. Try a Secured Card – A secured card requires an up-front payment that serves as collateral in case you fail to make payments. The size of the deposit will dictate your credit limit, but the interest rates will be lower since you have already provided collateral.
Compare the collective fees as you look through secured card options. Excessive fees can negate rewards programs and drag down your effective credit limit.If you want more credit, check out our list of secured credit card offers.
5. Find a Co-Signer – Assuming your parents have good credit, you can ask them to co-sign for a card. Co-signers are also responsible for charges on the card, so use it responsibly or you’ll affect your co-signer’s credit as well. Co-signers can see your transaction history, so don’t buy anything you don’t want to explain.
6. Be Selective with Applications – Multiple applications can give the impression that you need multiple sources of credit. That’s a red flag to any lender, especially when you have no credit history.
Research your options online, restricting your search to credit cards for people with no credit (or student credit cards, if that applies to you). Choose your favorite option among these cards, as well as your preferred store card. Limit your initial requests to one or two preferred options.
Consider co-signers or secured cards if these efforts fail – but ask why your card request was rejected first. You may have simply applied for the wrong card from that particular issuer.
Once you get a card, don’t rack up excessive bills or forget to make payments. You’re establishing your credit score and giving your first impression to lenders. Make sure it’s a good one.
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.