It’s a vicious cycle; you have no credit, so you look into how to build your credit. Tons of people suggest getting a credit card, so you apply for one. However, you are denied from getting a credit card because you don’t have credit. Consequently, you can’t build credit without tools like credit cards… which you just got denied for.
Don’t panic, though; all is not lost! It is possible to get your first credit card, even when you have no credit, it just requires planning around what you’ll need in order to apply for a credit card, and choosing the right card.
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Provide Proof of Income
For almost all credit cards, regardless of the issuer, you will need to have some proof of income. Different credit cards will carry different income limits, but they generally will expect some assurance that you can actually pay back what you charge.
If you are a student, under the age of 21, or unemployed for any reason, you can still qualify for a credit card, but you may have more limited options including secured credit cards and co-signers (more on those below).
Apply Through Your Bank
A good first place to start on your mission to get a credit card is your bank or credit union. Unlike other credit card companies, your bank has extra information about you other than just your credit report.
As they go through the approval process, they’ll look at things like your savings and checking accounts to see how much money you have. The bank will look to see how often you have money flowing in and how much money is available.
Many banks and credit unions also have a variety of credit cards they can offer. This may include starter credit cards, cards designed for students, and cards meant to help build credit with minimal risk. Many of these beginner credit cards will have lower monthly limits to help minimize risk.
Get a Secured Credit Card
Secured credit cards are another great option to help you build credit. A secured credit card is a card with a credit limit, similar to a credit card. The difference is you have to put money on the card, usually matching the limit, before you make any purchases with it. This method is very similar to a debit or prepaid card; once you run out of money, it’s done. Then, you add more money to it, and you are good to go.
There is one major benefit to a secured credit card. It reports your activity to the credit bureaus as you start using your card responsibly. Since you’ve already paid money, there is no risk of missing payments and hurting your credit, but it does enable you to build credit, and eventually graduate from a secured card to something better suited to your needs.
A secured credit card is a really good option for students looking to build their credit. While many can qualify for student credit cards, which have low-interest rates and credit limits, with a secured credit card you can’t overspend. It’s impossible to ruin your credit while using a secured credit card because you can’t miss payments.
Apply Through Retail Stores for Their Credit Cards
Many retail stores are notorious for giving out credit cards to basically anybody and everybody, including people with bad or no credit. This is because these stores have lower standards when it comes to credit cards, especially if they have a closed-loop card.
Closed-loop cards are credit cards that can only be used in their specific stores and aren’t backed by major credit card companies like Mastercard and Visa. Since they aren’t backed by these companies, retail stores that offer closed-loop cards can be a bit more flexible to who they give them out too. Many of these cards also have extra benefits, like points or rewards for the store.
With that flexibility comes some negatives. If a credit card is backed by a company like Visa, then you can use it almost anywhere, but if not, you are restricted to just shopping at that store. This means you have to shop at the store on a normal basis — at least once a month — to build credit. These cards also have lower credit limits and higher interest rates, so be sure to pay them off on time.
Have a Cosigner
Many credit card companies are going to be much more open to giving you a credit card if somebody with good credit is willing to take responsibility for you. If you are under age 21, then a co-signer may be your only pathway to getting your first credit card. In any situation, having a trusted friend, spouse, or other family member be a co-signer on your card application can open up doors to a ton more credit card options.
The danger of this choice, though, is that if something terrible happens and you can’t pay off your credit card, your co-signer is on the hook for it. Either they have to pay it off, or their credit is on the line. This can lead to hurt feelings, or a potential rift with important people in your life.
If you are responsible and only put what you can pay off on your card, you’ll be golden. Then, after a while of using the credit card and building your credit, you can get a new credit card without a cosigner, thereby freeing them from the obligation.
Become an Authorized User
If you are unable to obtain a credit card of your own, you can take advantage of another individual’s credit account by becoming an authorized user. Account owners can request — through the company that offers their credit card — to add a person to an account and they can order an additional physical card for you to use.
The issue is that the account owner is held responsible if the arrangement goes south and you are unable to pay your charges, so becoming an authorized user requires some degree of risk and trust.
Understand Best Credit Card Practices
Your credit is incredibly valuable, and having no credit can be very advantageous. If you are responsible with your credit, you can attain a good credit score within a year or so. It’s possible to get a car without credit or rent an apartment with bad credit, but having good credit makes it so much easier.
Be aware of bad credit card habits to break and the following tips for building credit:
- Always pay off your credit card debts before they are due;
- If you leave debts on your card past their due date, they will grow exponentially;
- If you can’t pay off all of the debt, pay as much as you can. You want to keep your credit utilization below 30%;
- Be responsible, don’t buy more than you can actually afford and be smart with your investments;
- A credit card can be a tool to build your credit, but if you fail to pay off your debts, it can ruin your credit.
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