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Author: Robin Saks Frankel | Last Updated: September 13, 2018
If your credit score is below 580, or you don’t have any credit, you may find that you’re fairly limited as to what credit cards you’ll be able to get. There are some options out there but it’s more than likely a secured credit card will be your best—if not only—option to begin building or repairing your credit. We’ve compiled the best credit cards for no credit from our partners to help you find the credit card that best suits your circumstances and goals.
In this article
Editor’s take on our favorite credit cards for limited or no credit
Discover it® Secured
This is Bankrate’s highest rated secured card—and for good reason. This card is one of the only ones designed for those with little to no credit that offers cash-back rewards and at a respectable rate too. The Discover it® Secured earns 2% back on dining and gas up to $1,000 in spending per quarter, and 1% on everything else. Saving money AND building up your credit sounds like a win-win to us.
- Regular on-time payments (and delinquent ones) will be reported to all three credit bureaus.
- This card’s credit limit is tied to the amount of the security deposit you put down starting at a $200 up to a maximum credit limit of $2,500.
- Discover will match dollar-for-dollar all of your rewards at the end of the first year of card ownership.
Capital One Secured Mastercard
The Capital One Secured Mastercard wants to help you achieve solid financial footings. At least, that’s what this piece of plastic implies with its structure. This card lets you pay your initial opening deposit in installments—which could be a real help for anyone on a fixed income. You have 80 days to pay off your opening security deposit, which starts at a minimum of $200.
- You may be eligible for a higher credit limit after you make five on-time payments in a row.
- This card comes with Platinum Mastercard benefits, which include travel and auto protections.
- There’s no annual fee, no set-up fee and no maintenance fee.
OpenSky Secured Visa Credit Card
The Website for OpenSky’s Secured Visa Credit Card deserves kudos. It’s one of the best-designed and most accessible we’ve seen. On the site, the terms of the card and information about how you can build or improve credit with the card is easy to navigate and written in clear language that anybody should be able to follow.
- Previous credit history, or lack of won’t be a barrier to obtaining the card. You can qualify by opening making a fully refundable deposit with OpenSky into an FDIC-insured account.
- Payments will be reported to the three major credit bureaus every month.
- Late payments won’t affect your APR.
Why you should start building credit
Your credit score is one of the single most influential factors that will determine your financial standing. If you have no credit history at all, or you’re recovering from a bankruptcy, you should aim to build your credit to help you achieve greater financial success and receive better rates on all of your loans.
When you hear a three-digit number referring to a credit score, that number is likely a FICO score, which stands for the Fair Isaac Corporation. FICO scores range from a low of 300 to a high of 850. According to Experian, one the three major credit reporting bureaus, 66 percent of Americans have a FICO score of “Good” or better, which means they have a score of 670 or higher. Those with a score of “Very Poor” fall into a score range of 300 to 579. Approximately 16 percent of Americans fall into this range.
Credit card issuers, mortgage lenders, personal loans and auto loans all offer the best rates to those with the highest credit scores. When you get better interest rates, it can save you money.
For example, if you have a credit card and have a balance of $10,000 on it, someone with excellent credit may have an annual percentage rate (APR) of 17%, so over the course of the year, if you leave the balance untouched, that $10,000 will accrue $1,700 in interest. Someone with poor credit on the other hand may only qualify for a card with a higher APR, like 29 percent. That same $10,000 balance over the course of a year with an APR of 29 percent will accrue $2,900 in interest charges—a $1,200 difference just because of a lower credit score.
When it comes to loans that take years to pay off, like student loans and mortgages, the difference between poor credit and good credit can means thousands of dollars over the life of a loan. And, those with poor credit may not even be able to get approved by a lender, making it difficult to make any purchase that you’d like to pay off over time.
How to build credit
For someone who is just starting out, it’s important to know that it takes time build up a strong credit score. A credit card can be a great way to start to build up your credit history if you use it wisely. Even if you’re only eligible for a secured card, if you use the card to make small charges, keep your spending on the card at a minimum and pay your bill on time and in full every month you can begin to improve your score.
One of the factors that can affect your score is your total debt-to-available-credit ratio. In general, it’s best to keep this ratio at 30% or less. If you have a card with a total credit limit of $1,000, aim to spend no more than $300 on the card in a billing cycle. This includes any issuer set-up and maintenance charges that may come with some of the cards designed for those with no credit.
Pay your bills in full and on time every month, keep your debt-to-available-credit ratio low and you’ll eventually get approved for a higher credit limit, which can help improve your score. Maintain good payment behavior and over time your score will continue to improve. Your goal should be to eventually attain excellent credit, so that you qualify for the best rates on all loans.
When you should start building credit
As soon as you open your first bank account, you should consider building your credit profile. It’s possible—and necessary to gain strong financial footing, to build up a credit file even when you don’t have any credit.
If you don’t think you’ll qualify to get a credit card on your own, consider becoming an authorized user on a family member or close friend’s card. Or, have someone co-sign on a card application with you. A secured card may also be a good choice as these cards have far less stringent criteria for approval than unsecured cards.
With regular on-time payments, you can begin to boost your score.
Is no credit worse than bad credit?
Having no credit and having bad credit are two very different things. Someone with no credit is typically someone who is just starting out, either as young adult or new to this country. Having bad credit however, means that you’ve made poor financial chances and are considered risky to lenders. For example, a landlord may look less favorably upon someone who has recently filed for bankruptcy then a recent college grad with no credit who just landed their first job.
In most cases, no credit is somewhat of a clean slate and will likely take you less time to build up a strong credit profile than someone who has to wait until a bankruptcy is discharged or other bad credit issue affecting them.
How a credit card can help you build credit
When you open a line of credit, which is what a credit card is, you create a record with the credit reporting agencies. Just by applying for the card, the issuer will do what’s called a “hard” inquiry, which means it will show up on your credit report with at least one of the three major credit bureaus. Every time you make—or miss, a payment, it will be recorded on your credit report. So, with regular on-time payments to your credit card, you can begin to build a record of responsible payment behavior.