How do you obtain a credit card if you’ve never had any form of credit before? How can you prove to the credit card issuer that you can be responsible with credit, if you haven’t been given the opportunity to build out your credit history? The answer to this conundrum comes in the form of first credit cards.
First credit cards, also known as ‘credit building cards’, or ‘cards for bad credit’, are specifically designed for people who have yet to establish a credit history, or have a credit history that needs repairing. These cards tend to be more inclusive and have more relaxed eligibility criteria than their more traditional counterparts. For example, annual income requirements tend to be lower, and your current employment status will be less of a sticking point.
The application process for a first credit card is simple, and can be completed online by filling out an application form and submitting some forms of ID. Some credit card issuers offer an eligibility checker, where you can check the likelihood of being accepted before you officially apply, which will not show up on your credit history. Generally you will be asked to provide such information as:
Because credit card issuers have no idea about your past behaviour with credit, first credit cards tend to be more restrictive in their use – at least initially. For example:
Lower credit limit – First credit cards typically come with a lower credit limit, usually between £100 and £1,200. Some issuers will give you the opportunity to increase this limit slowly over time, providing you have proven yourself to be responsible with your spending and repaying.
Higher APR – Because of the credit card issuer’s perception of your financial risk, APRs on first credit cards are generally higher than more conventional cards. Furthermore, some credit card issuers offer alternative (even higher) APRs, which are offered if you are not considered eligible for the card you applied for. This is known as ‘personal pricing’ or ‘downsell rates’. If you consider that making multiple applications for credit in quick succession harms your credit rating, it may be worth applying for cards which have an eligibility checker, so that you can determine which rate you will be subject to before you officially apply.
It’s not all bad news though. First credit cards come with a whole host of helpful tools to aid you in coping with your everyday finances, and with your quest to build a good credit history. These can include:
Free access to your credit report – This can be extremely useful, as you can see exactly what any credit card issuer can see. You can keep a constant check on your credit file to ensure all the information is correct, and you can see your credit improving over time.
Mobile app – These are available with almost all first credit cards and can help you manage your finances even when you are on the move. You can check balances, pay bills and set up or amend direct debits or standing orders.
Text or email alerts – These can be set up to warn you of any outgoing payments, or to alert you when you are nearing your credit limit.
Payment flexibility – Some issuers will give you the option of moving your monthly repayment date – often more than once a year – to a day more suitable for you.
Payment holiday – Payment holidays aren’t common, but they are offered by some card issuers. Put simply, they let you skip a month’s credit card repayment – but be warned that they’re not automatically granted, so you should contact your credit card issuer in good time before you miss your payment.
And finally, just because first credit cards are for those who have yet to prove themselves financially, they can offer rewards and benefits, albeit on a smaller scale to more conventional credit cards. Such rewards can include:
Cashback – Cashback will probably be paid at a low rate, and may be capped to a certain amount per year, but such cards can reward you for simply spending on your credit card. You should look to see what rate of cashback is paid where, as many cards will pay different rates depending on where you use your card.
0% balance transfers – While only offered for a comparatively short period of time, some first credit cards offer 0% interest balance transfers. There will be a fee, though – usually 3 to 4% of the amount being transferred.
0% purchases – Again, 0% interest on purchases is usually only offered for a short period of time.
Money transfers – This lets you transfer money from your credit card to your current account. There is a fee for this service, typically around 4 to 5%.
Loyalty points – There are first credit cards which offer points as a reward for simply spending on your credit card.
No fees when spending abroad – This is especially helpful if you plan to take your card away on your holidays, as those transaction fees can mount up.
There are some important dos and don’ts with first credit cards – first and foremost to improve your credit rating, but also to avoid unexpected and unwanted fees and charges.
Do try to pay off your balance in full every month. Your credit record will show your timely repayment of debt, and you won’t ever be subject to a high rate of APR. If paying off your entire balance is not possible, then pay off as much as you can afford every month.
Do make all of your repayments on time. Failure to do so will not only harm your credit rating, but your credit card issuer will retract any special introductory offers or benefits that the card came with. It is always advisable to set up a direct debit from the outset, to save you having to remember to make the payment every month.
Do make the most of all the financial tools your credit card has to offer, including budgeting tools, setting up reminders for payments, checking your credit history regularly, and taking positive steps to improve your credit file. Get yourself into good habits from the outset, and you will be laying the foundations for good financial management in the future.
Don’t spend up to your credit limit every month – your ‘utilisation ratio’ (your outstanding debt vs. the total amount of credit available to you) is a major factor to credit card issuers when you are applying for further credit in the future. Ideally you should keep the utilisation ratio between 30 and 40%. It is always best practice to spend on your card, then pay it all off (or as much as you possibly can) before you spend again.
Don’t make cash withdrawals on your first credit card. The APR charged when you repay this money is often much higher than your standard APR – up to 10% higher!
Don’t use your first credit card for spending overseas (unless your card comes with free foreign transactions), as purchasing items abroad incurs a fee every time, as does taking money out from a foreign ATM.
If you spend and repay wisely with your first credit card, ensuring that you remain well within your credit limit and repay at least your minimum repayment every month without fail, you will establish an official record of good financial management. The positive effect that this good credit history can have on your future should not be underestimated: it will not only give you access to more rewarding credit cards in the future, but also other competitive financial products such as loans, current accounts and mortgages.
A credit card can be a great vehicle for demonstrating good financial management skills, and in time can improve your credit rating to a point where you can apply for more conventional (and potentially rewarding) credit cards. However, it is not enough simply to own a card. You need to spend on the card regularly and repay at least your minimum payment promptly every month, or even better, pay off the balance in full. If your aim is to improve your credit score, rather than to use your card for credit, it makes sense to use your credit card for things you would normally use your debit card for (shopping, fuel etc.), then pay off the credit card balance with money from your bank account. That way, you have not spent any more, but the credit card issuer has reported back to the credit reference agencies that you are regularly borrowing and making successful repayments on time.
Because credit card issuers have no history of your previous financial management skills, they are taking a risk offering you a card: if you default on your payments, the credit card company will lose money. The APR on credit cards for those new to credit reflects this level of risk.
If a card’s APR is advertised as ‘Representative’, then this means that only 51% of their customers have to be offered that rate, leaving the remaining 49% being offered a potentially lower rate. Some credit card issuers (though not all) offer ‘downsell’ rates, which are alternative, less favourable rates which could be offered if you are unsuccessful in obtaining the best rate.
If you don’t want to take out a credit card, or you have been refused, you could consider a credit building prepaid card. These cards don’t require a credit check, so any UK resident over the age of 18 would be accepted. Furthermore, the monthly fees that you pay for such a card are treated as a loan repayment and are reported back to the credit reference agencies as such. In this way, you should see your credit rating improve over time.
Yes, outside of using a credit card responsibly, there are several things you can do to help push your credit score in the right direction:
If you demonstrate that you can borrow and repay responsibly – i.e. you stay within the credit limit and repay what you owe on time and in full – you should see an improvement in your credit score within around three months. If you plan to apply for another credit card, it would be advisable to wait around 6 to 12 months, so that your credit history does not show too many credit card applications in quick succession.
Now read our guide to using a credit card correctly
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Last updated: 2 March, 2020