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Author: Barry Bridges | firstname.lastname@example.org
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Chances are you may be just starting out on your financial journey, or you could be starting anew after a few financial missteps. Well, you have come to the right place. Bankrate’s team of personal finance experts have over ten years experience offering thoughtful advice on life’s financial journey.
When you don’t have a credit history, you could use a good credit card to help you establish a strong one. The cards we recommend are the best for building the foundation of a credit history that will benefit you the rest of your life.
Bankrate uses a unique 100-point scoring system to evaluate credit cards for particular types of consumers. For people with no credit history, our analysis put special focus on features including:
- Annual fees: If you want a starter credit card but don’t have a lot of money to spare the cards on this list have either no annual fee or an annual fee under $40.
- Intro APR: Annual Percentage Rate (APR) determines how much interest you pay. Some of our top cards offer 0% introductory APR for purchases or low introductory APR for balance transfers.
- Incentives: You’ll find cards on this list that reward you for good financial habits, like the option to increase your credit line for making on-time payments. We’ve also included student cards that offer statement credits for making good grades.
- Credit-building tools: Cards that offer monthly reporting to credit bureaus help establish your credit history.
Bankrate can help you find a credit card to begin building a solid credit history, purchase by purchase and payment by payment. Check out our best credit cards for no credit history and get started today.
Editor’s take on our favorite credit cards for limited or no credit in 2019
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 lets you establish your credit line with your tax return by providing a refundable security deposit from $200-$2500 after being approved. Bank information must be provided when submitting your deposit.
- 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 35 days of being approved, to pay off your opening security deposit, which could range from $49, $99 or $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 protection.
- 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 are 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 is building credit important
Considering 90 percent of financial institutions in the U.S. use FICO scores in their decision-making process, your credit score is one of the single most influential factors in determining your financial standing. Lenders use your credit score to gauge how reliable you are at paying your bills on time and in full.
When you hear a three-digit number referring to a credit score, that number is likely a FICO score. FICO scores range from a low of 300 to a high of 850. According to Experian, one of the three major credit reporting bureaus, approximately 16 percent of Americans have a “Very Poor” score – meaning 579 or lower. Those with no credit history or low credit scores might struggle to be approved for a mortgage, auto loan, credit card and more. Even if you get approved, those will lower credit scores aren’t offered the most favorable terms on interest rates or credit limits.
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 mean 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 to build up a strong credit score. A credit card can be a great way to start building 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 each month, you can improve your score by the end of 2019.
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 throughout 2019, you can boost your score even if you started the year with no credit.
Is no credit the same as 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 a young adult or someone new to the country. Having bad credit, however, means that you’ve possibly made poor financial decisions and are considered risky to lenders. Therefore, lenders are typically more favorable towards those with no credit.
For example, a landlord may look less favorably upon someone who has recently filed for bankruptcy than a recent college grad with no credit who just landed their first job. In most cases, no credit is somewhat of a clean slate, taking 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 is resolved.
How a credit card can help you build credit
Most credit card issuers report your spending habits and payment history to one of three major credit reporting agencies. These agencies compile this information with reports from other lenders such as your mortgage company or small loan lender to create your overall credit report and credit score.
By practicing responsible spending habits with your credit card, you are showing these reporting agencies that you are low-risk, meaning they don’t have to worry about you not paying your bills or maxing out your credit.
While responsible credit card usage can help those with bad or no credit improve their score, it’s also important to remember that scores can be temporarily impacted by credit card applications. Every time you apply for a card, the issuer will do what’s called a “hard” inquiry, which will show up on your credit report. Multiple hard inquiries can damage your credit score, so make sure that you are only applying for lines of credit when necessary.
Barry Bridges is a senior editor for Bankrate. Before he started writing about personal finance, he was an award-winning newspaper journalist in his native North Carolina. Send your questions about credit cards (and fantasy baseball) to email@example.com.
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