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Author: Barry Bridges | bbridges@bankrate.com
How (and why) to get a credit card if you have no credit history
Even if you have no credit history, a credit card could still be a viable option. Many financial institutions offer cards designed specifically for people who have yet to start building their credit profile.
The top credit cards for no credit history offer more than the everyday convenience of cashless transactions. They also offer benefits including educational resources for your credit-building journey. For you, that journey can begin with choosing the right credit card.
Bankrate’s top picks: Starter credit cards for no credit history
A closer look at top cards for no credit history
Deserve® EDU Mastercard for Students
The Deserve EDU Mastercard for Students not only makes it simple for U.S. and international students to build credit with a unique approval process, but also makes it easy to earn rewards with a 1% unlimited cash back on all purchases. Plus, If you pay with your Deserve® EDU Mastercard for Students, you’ll get a one year reimbursement on your Amazon Prime Student membership after spending $500 in the first 3 billing cycles (lifetime value of $59), which is a great perk. A card that allows you to build your credit in a manageable way while also earning generous rewards could help your journey into personal finance get off to a smoother start.
Highlights:
- There are no annual fees or foreign transaction fees.
- This card offers Mastercard Platinum benefits, like access to fuel rewards and price protection.
- There’s no fee for charging over the credit limit.
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.
Highlights:
- Previous credit history or lack of won’t be a barrier to obtaining the card. You can qualify by 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.
- 17.39% variable APR.
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 $20 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.
Highlights:
- You may be eligible for a higher credit limit after 6 months.
- 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.
Self – Credit Builder Account + Secured Visa Credit Card
The Self – Credit Builder Account + Secured Visa Credit Card is an innovative option for anyone who prefers a more gradual approach to establishing a credit history. Make on-time payments to your Credit Builder Account, which will be reported to the major credit bureaus. Those on-time payments allow you to qualify for the secured card. The process takes 12-24 months*, which could be ideal for young people still in school.
Highlights:
- 21.74% variable APR
- No penalty APR
- Use savings from Credit Builder Account for secured card deposit
- Annual fee: one-time $9, secured card $25
The Jasper Mastercard®
The Jasper Mastercard aims to help budding professionals build their careers and credit histories at the same time. The generous credit limit (up to $5,000), lower-than-average 15.49% variable APR and lack of an annual fee* help make the Jasper an economical choice for young professionals on a strict budget. Also, the application process removes some of the traditional credit barriers faced by newcomers to the United States with work visas, including a hard credit check.
Highlights:
- You don’t need a U.S. credit history to apply
- The available credit limit is up to $5,000
- No annual fee*
- The card features account management and credit-building tools
Discover it® Secured (not currently available)
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.
Highlights:
- Regular on-time payments (and delinquent ones) will be reported to all three credit bureaus.
- This card lets you establish your credit line 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.
Why building a credit history is important
Your credit history, often called your credit report, is a record of your performance as a borrower and user of credit. Lenders refer to your credit history when you apply for car loans and mortgages. Many employers run credit checks on job applicants, and landlords routinely use credit reports when they screen prospective tenants.
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.
A good credit history indicates that you’re a reliable and financially responsible person. Establishing a solid credit history could increase your chances of getting approved for loans and receiving better offers on interest rates. It could also lead to more opportunities in where you choose to work and live.
Your credit history will probably have a large influence not only on your personal finances but also on other areas of your life. Used correctly, a credit card is one of the ways you can start building a solid credit foundation.
How to build credit history with a credit card
Your credit report is created when you open your first credit account, whether it’s a credit card, auto loan or some other type. What happens next depends a lot on your actions and decisions.
Building a credit history takes time. Building a strong credit history takes both time and good financial habits. Keep two key guidelines in mind as you think about building your credit history with a credit card:
1. Practice good spending habits
By practicing responsible spending habits with your credit card, you show the credit reporting bureaus and potential lenders that you are low-risk, meaning they have little reason to worry about you not paying your bills or maxing out your credit.
Also, overspending with your card could affect your credit utilization, the ratio that measures how much credit you’re using in relation to how much credit you have available. In general, it’s best to keep this ratio at 30 percent or less.
For example: 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.
Online account management makes it easy to track your charges day to day without having to wait for a statement at the end of the month. Use your account’s dashboard to keep an eye on how much you’re using the card.
2. Pay your credit card bill on time and in full
Speaking of spending, making too many purchases with your credit card could also lead to big balances that are difficult to pay off in time. Late or missed payments never look good on your credit history.
A more immediate concern is Annual Percentage Rate, or APR. APR represents the cost of interest and other fees, and it applies to any unpaid charges carried over from one billing cycle to the next. To avoid APR, pay off your entire balance by the due date whenever possible.
Some credit-building cards provide extra incentive by offering to raise your credit limit after you’ve made a certain number of consecutive on-time payments.
How you can build credit without a credit card
If you’re not quite ready to do the research and start shopping around, you do have other credit-building options apart from a credit card. They include:
- Become an authorized user on another person’s card, such as a parent, spouse or partner.
- Sign up for a service that reports rent or utility payments to the three credit bureaus (also known as self-reporting) so that these payments are reflected in your credit history.
- If you have a car loan, personal loan or student loan, be diligent about making your payments on time.
Fortunately, some financial institutions are taking steps to better serve consumers who lack a traditional credit profile. One example is Experian Boost, a program designed to incorporate factors such as telecommunications payments (as in your monthly cellphone bill) into credit scores.
Requirements to get a credit card
- You must be at least 18 years old. You cannot be approved for your own credit card as a minor. Even at 18 – 20 years old, you will be asked to provide proof of independent income or to have a parent cosign on your application, as required by the Card Act of 2009. One option for minors seeking access to credit is to become an authorized user on a parent or guardian’s credit card. There is no age requirement to become an authorized user, and you’ll also be able to build credit.
- You must have an income source or access to an income source. Credit card applications will ask for your income. If you don’t have an independent source of income, you may list that of your parent or partner, as long as you have “reasonable expectation of access” to that money, like having a shared bank account. This is an amendment to the Card Act of 2009.
- You’ll usually need a Social Security Number or an Individual Taxpayer Identification Number. In most traditional cases, you will need to provide your Social Security Number on a credit card application; Discover, Synchrony Bank and Barclaycard require it. However, some issuers like Capital One and American Express may accept an Individual Taxpayer Identification Number in place of a SSN. An ITIN is a nine-digit number issued by the IRS to a tax-paying individual who lives in the U.S. and does not have a Social Security Number. Keep in mind that you may still be denied with an ITIN due to a lack of credit history within the U.S.
Tips on applying for your first credit card
Making your first-ever credit card application doesn’t have to be intimidating. Consider a few guidelines that can help you prepare:
Check your credit report before getting started
If you don’t know what’s on your credit report, you don’t really have an idea where you stand. Fortunately, you’re allowed to request a free copy from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year.
You can choose one of three options:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
When you make the request online, your credit report should be available immediately after you’ve verified your identity. With phone or mail requests, the report will be mailed to you within 15 days.
Why you should check your credit report before applying for a credit card
Errors could be present on your credit report, errors you might not even know about unless you checked. It could be anything from a misspelling of your name to an old debt mistakenly listed as unpaid. If your credit report has an error, it could make you appear to be a less desirable candidate to receive a card, loan or other form of credit.
Fortunately, all three major credit reporting bureaus have processes in place for disputing and correcting errors. You can check each bureau’s website to find out the details:
Make sure to check the credit report from each credit bureau. If you find any errors, contact the bureau where the error appears. When your credit report is accurate and up to date, you can start shopping for a card with more confidence.
Look for pre-qualified offers
Credit card issuers and other types of lenders can perform two kinds of credit checks when someone submits an application: a hard inquiry and a soft inquiry.
Pre-qualified offers use soft inquiries. A hard inquiry will temporarily lower your credit score. A credit score isn’t the same thing as credit history, but both play an essential role in your access to credit.
Know the difference between secured and unsecured cards
Another factor to consider is secured cards vs. unsecured cards.
Secured cards require you to make a deposit, which typically means you need a bank account. Your credit limit will equal the size of your deposit in most cases, at least temporarily. Unsecured cards don’t involve any type of deposit, and most credit cards fall into this category.
The approval process for unsecured credit cards often relies on personal financial information, such as credit score and annual income. If you don’t have a credit history or full-time employment, you might have trouble qualifying for an unsecured card.
Be ready to submit some information
It’s routine for the application process to require some basic information, even if you have no credit history. The issuer will need to verify your identity, which is why you’ll be asked for details such as your full name, date of birth, Social Security Number and address.
Depending on the type of card and the issuer, you might also need to provide your yearly income, monthly rent or mortgage payments and other information that offers insight into your current financial situation.
Make sure to choose the right card for you
You’ll need the right tool to build your credit history in a way that matches up with your current financial situation and your long-term goals. Things to consider as you research your options include:
- Some cards offer rewards programs while others are strictly functional. Are you interested in earning cash back as you build your credit history or would you prefer a more basic card?
- Do you have the up-front money to cover a deposit if you choose a secured credit card as opposed to an unsecured card?
- Do you have room in your budget for a card that has an annual fee and other recurring charges?
The reality is that people with no credit history tend to have fewer choices when it comes to credit cards. The narrower range of options makes it even more important to choose carefully.
Limit the number of applications you make
Applying for multiple cards in a short period of time could signal to lenders that you want more credit than you can responsibly handle. Also, remember that credit applications involving a hard inquiry will lower your credit score temporarily.
Beginner’s frequently asked questions on credit cards and credit history
Are credit report and credit score the same thing?
Your credit report, or credit history, is different from your credit score. However, both are essential to your financial standing.
A credit report is a detailed account that includes a person’s credit accounts and debts, past and present. A credit score provides a way for lenders to measure your creditworthiness at a given point in time. It’s based on five criteria, with each one accounting for a certain percentage of the score:
- Payment history — 35 percent
- Credit utilization — 30 percent
- Length of credit history — 15 percent
- Types of credit used — 10 percent
- New credit — 10 percent
Who determines credit history?
Another difference between credit reports and credit scores is how they’re created. A credit report is created by Experian, Equifax and TransUnion, the three credit reporting bureaus. FICO and VantageScore and other scoring systems generate credit scores.
Financial institutions use credit reports, credit scores or both to make decisions about lending. With credit cards, issuers typically use your credit score but not your credit report to decide approvals, APR and credit limits.
Is no credit the same as bad credit?
Having no credit and having bad credit are two 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. Faced with choosing between the two, lenders are typically more favorable toward those with no credit.
For example, a landlord may look less favorably upon someone who has recently filed for bankruptcy than a recent college graduate 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.
What is the easiest credit card to get?
The easiest credit cards to get ahold of do not require credit history or large security deposits. Many secured credit cards fit these criteria, such as the Discover it® Secured, which charges no annual fee and requires a refundable deposit of just $200. Plus, you can even earn cash back rewards with this card.
How we rate credit cards for no credit history
Bankrate uses a unique 5-star scoring system to evaluate credit cards. In selecting the top cards in the no-credit-history category, we emphasized 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 $100.
APR
Annual Percentage Rate (APR) determines how much interest you would pay on unpaid balances. The best no-credit-history cards will offer APRs reasonably close to the typical current rate.
Incentives
You’ll find cards on this list that reward good financial habits, like the option to increase your credit line for making on-time payments.
Credit-building tools
Cards that offer monthly reporting to credit bureaus help establish your credit history. A record of timely credit card payments sends a positive signal to the bureaus.
To help consumers make informed decisions, Bankrate offers a wealth of resources on topics about personal finance. To learn more about credit history and building credit, check out the following items:
Senior Editor Barry Bridges has been writing about credit cards, loans, mortgages and other personal finance products for Bankrate since 2018. His work has also appeared on websites including Nasdaq.com, Zillow.com and The Simple Dollar. He was previously an award-winning newspaper journalist in his native North Carolina. Send your questions about credit cards (and fantasy baseball) to bbridges@bankrate.com.
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