These days, having good credit is less of a suggestion and more of a mandate. Let’s face it, when you have good credit, you have more opportunities. You can lease a nicer apartment and put a downpayment on a new car. Having good credit also comes in handy when you need to apply for a loan.
So, what do you do when you have no credit history whatsoever? Do you qualify for any type of credit card? Younger people, students, immigrants and anyone afraid of the notion of debt are left wondering how they can get a credit card with no credit history.
Luckily, there are ways you can get a credit card with no credit. It is possible, and while it might take some work, the benefits go well beyond getting approved. In fact, some credit cards are designed with this type of individual in mind. However, some require collateral as a result.
The idea of putting down a deposit in order to get a credit card shouldn’t cause you to run for the hills. Getting a credit card with no credit history is more than possible. Let’s take a look at how.
Can you get a credit card if you have no credit?
Getting your first credit card may be one of the most important steps toward building a strong credit history. But if you don’t have enough of an established credit history to generate a credit score, can you get approved for a credit card? The short answer is yes, but you are limited in the types of credit cards you can get approved for.
Building credit can seem next to impossible if you are contemplating opening your first line of credit. This is because most credit card issuers look for consumers who have an established credit history in order to grasp their creditworthiness. A credit score tells lenders whether or not you are responsible.
However, having no credit history is different from having a bad credit score. A bad credit score tells lenders you’ve misused credit in the past. Perhaps you missed multiple payments in a row and now you have found yourself with a mountain of credit card debt. Consumers who do not have a credit history simply don’t have enough data to calculate a credit score.
Your credit score heavily influences the types of credit cards you are eligible for, but with this in mind, you do have options. There are credit cards geared toward consumers who have low credit scores or no credit history at all, such as the following:
- Student credit cards: A student credit card is an excellent way to build credit while taking the right steps towards learning solid financial habits. Student credit cards are designed for students who haven’t had a credit card before. They often come with noteworthy perks, such as student-centric rewards and no annual fees.
- Secured credit cards: Secured credit cards give you access to a small line of credit in exchange for a one-time security deposit. Your credit limit is usually equal to your security deposit.
Features to look out for in your first credit card
Your options may be limited when browsing for your first credit card, but building credit with your first line of credit isn’t a race you need to win. It is important to use your first credit card as an opportunity to adopt healthy financial habits, so you can eventually graduate to a credit card that may have more perks and rewards.
As you compare the pros and cons, here are a few features to keep an eye on.
There are plenty of student credit cards and secured credit cards without annual fees, so keep this in mind while browsing through your options. The last thing you want is your first credit card to come with a steep annual fee. For example, the Capital One Platinum Secured Credit Card does not have an annual fee, but the OpenSky® Secured Visa® Credit Card comes with a $35 annual fee. While that may not be a lot to pay once a year, know that you have options.
Foreign transaction fees
Much like annual fees, you want to keep an eye out for any cards that come with foreign transaction fees. A top choice to keep in mind if you are a student looking for a starter credit card is the Discover it® Student Cash Back credit card given the lack of foreign transaction fees. If you are planning on studying abroad or taking a trip across the pond for spring break, you won’t have to worry about any additional charges while using your credit card internationally.
High interest rates
Credit cards for individuals with no credit (or poor credit) typically come with much higher interest rates. This may be unavoidable, however, if you manage to pay your bill in full and on time each month, you won’t have to pay interest. The Petal® 2 “Cash Back, No fees” Visa® Credit Card (issued by WebBank) offers great options for individuals looking to build their credit while also earning cash back.
The Petal 2 offers 1 percent cash back on eligible purchases or up to 1.5 percent on eligible purchases after you make 12 on-time monthly payments. What is especially noteworthy? The card’s 15.24 percent to 29.24 percent variable APR, making it a solid option for a starter credit card with low interest.
Best credit cards for no credit history
Capital One Platinum Secured Credit Card: Best for accessing higher credit line
The Capital One Platinum Secured Credit Card is designed for individuals with no credit history looking for a way to build up their credit score. Though this card offers no rewards, cardholders can access an initial $200 credit line by paying a deposit as low as $49. In addition to the card’s low deposit requirement, there’s no annual fee or foreign transaction fees.
The Capital One Platinum Secured does not offer an introductory purchase APR or a balance transfer intro APR, however, compared to other secured credit cards, the Platinum Secured is incredibly affordable and makes it easy to build credit from scratch. Once new cardholders prove their creditworthiness with consistent on time payments, they will be automatically considered for a higher credit line in as little as six months.
Discover it® Secured Credit Card: Best secured card with rewards
Rewards are rare when it comes to secured credit cards, however not when it comes to the Discover it Secured Credit Card. Cardholders will earn 2 percent cash back at restaurants and gas stations (on up to $1,000 in combined purchases per quarter, then 1 percent) and 1 percent for all other purchases.
Plus, new cardholders will earn double the rewards at the end of their first year with Discover’s Cashback Match™ program. There’s no annual fee or foreign transaction fees, and Discover will review your account after seven months to see if you qualify for an unsecured credit card.
Discover it® Student Cash Back: Best for rotating cash back bonus categories
The Discover it Student Cash Back credit card is a solid student-centric credit card that offers an impressive rewards structure for individuals with no credit history. Cardholders will earn 5 percent cash back on each quarter’s activated rotating categories (on up to $1,500 in combined purchases, then 1 percent) and 1 percent on all other purchases.
Like the Discover it Secured card, all cash back earned within the first year will be matched with Discover’s Cashback Match™ program. If you are a student looking for a way to build your credit while earning cash back, the Discover it Student Cash Back card should definitely be near the top of your list for best starter credit cards.
How to use your first credit card to build credit
It isn’t outside the box to wonder if your credit score starts at zero. But the truth is there is no such thing as a “starting credit score.” When you are new to credit, you build your credit score simply based on the way you chose to use it. When you open your first credit card, you will begin to build your credit score.
The key to building a strong credit score is to pay your bills on time and in full every single time. But there are several steps you can take to boost it even further in order to qualify for better credit cards down the line.
Become an authorized user
When you’re an authorized user, you are added to the credit card account of an existing cardholder, typically one belonging to a family member or friend. The primary cardholder simply adds you as an authorized user and you get your own credit card with your name on it. The primary cardholder is responsible for making all the payments, which makes them liable. The account and payment history will be reported to the credit bureaus, populating your newly created credit reports.
Use your card wisely
This should be a no-brainer, but the best way to improve your credit score is by adopting healthy habits from the very beginning. When you pay your bills on time, you boost your credit score. If you’re 30 days past due on a payment, it will be reported to the credit bureaus and your credit score will take a hit.
Limit credit inquiries
A hard inquiry shows up on your credit report each time you apply for a credit card. When you apply for a credit card, the lender will perform a hard credit inquiry and this dings your credit score a few points, temporarily. With this in mind, don’t go on a credit spree and apply for every single credit card available on the market. Do your research to determine which credit card is best for you and apply for one at a time as a best practice.
Keep an eye on your credit utilization ratio
Your credit utilization ratio measures how much of your available credit you are using. This amount is expressed as a percentage, and it makes up 30 percent of your credit score. The lower this number, the better it is for your credit score. Once you get started with your first credit card, check out our credit utilization calculator to determine what your ratio is.
The bottom line
A high credit score will make your life easier in the long run, especially when you want to apply for a loan or a better credit card, but keep in mind this comes with patience and solid financial habits. If you can commit to a long-term strategy when it comes to making on-time payments and keeping your credit utilization ratio within a healthy range, you will be on track to graduate from your secured credit card to an unsecured credit card in no time.