Your credit history encompasses your payment history, amounts owed, types of credit in use, the length of time you’ve owned a credit card, and more. However, if you’ve never owned a credit card, you may be wondering if there are any options available for you. Luckily there are, although you may not be eligible for a credit card with extensive perks and benefits, you can still begin building your credit score and history. Having a limited credit history or no credit history at all, can make it challenging to qualify for a high-quality credit card, meaning you’ll want to investigate all credit card options that are focused on helping you build your credit history.
How Having No Credit May Affect Your Financial Future
People with no credit may struggle with:
- Finding low interest rate options
- Have a hard time renting or buying homes
- Missing out on credit cards that offer attractive benefits like cash back
- Being seen as a potential risk to lenders
However, it’s very possible to turn your lack of credit card history around. The biggest factor to successfully building credit that you’ll want to keep in mind is to use your whatever card you have responsibly. Before you open a new credit account, be sure to take the time to review your credit card issuer’s terms and conditions before fully committing to getting your new card.
Applying for a starter credit card is a great option for those with bad credit or college student looking to establish their financial history. Secured credit cards are also a viable option for those looking to build credit. Secured credit cards are cards that have a set credit limit based upon the amount of money you are required deposit with the credit card issuer when you open the account.
Ultimately, building credit with a secured credit card can be a safer option since your credit limit will most likely be low and easier to pay off on time. Unsecured credit cards require no deposit for approval and are generally the most common cards used. When you are applying for a credit card, be sure to review any terms and conditions of use and be sure you're aware of the type of card you apply for as well.
How to Build Credit
The biggest factor in building your credit score is to pay your bills on time. When you make timely payments to your credit card, it will be positively reported to the credit bureaus which is what you want. Having a “good” credit score is defined as having a 670+ FICO® score or higher. Poor credit scores are really anything below a 670 FICO score.
When you are looking to improve your credit score if you have no credit history, it will be important to make smart financial decisions. Initially, when you apply for a new credit card having no credit history, you may have higher interest rates than someone who has an established credit history. Don't let this deter you from owning a credit card. Once you incorporate a credit card into your personal finance repertoire and use your card responsibly, your credit report will look great in no time and you can switch to a lower interest credit card.
Why Credit Scores and Credit History are So Important
People with no credit history may be wondering why having a credit score is important. A credit history tells potential lenders how you behave financially and that’s important to know if they are going to lend you money. Do you make your payments on time, do you use all your available credit etc. These behaviors help to assign you a score – your credit score and this score determines how much of a risk it is to lend you money.
This score is typically a number within a scoring range of about 300-800, based on the credit scoring model called FICO. With 300 being considered a “bad” credit score and 800 being in the “excellent” credit score range, your credit score can highly impact your financial future and decisions. The lower your credit score, the more you’re seen as a liability to potential lenders. If you’re trying to apply for an apartment for example, your application may be rejected based off a low credit score. Put simply, having a credit score below the 500 range is not ideal or beneficial to anyone.
When you have a high credit score in the 700+ range of scoring, you’ll reap the benefits of:
- Lower interest rates
- Higher quality loans
- Better housing options
- Better rates for car insurance
- Higher credit limits in the future
These are only a few of the many benefits of having an established credit history and high credit score. Use this as motivation to use your credit card responsibly, so you can set yourself up for financial success.
Why Becoming An Authorized User Can Help Build Credit History
Becoming an authorized user is when your name becomes linked as a cardholder on someone else’s credit card account. If you can become an authorized user on an account with a high credit score and established credit history, you can positively impact your own credit score. Be sure that you trust the accountholder and are assured that they have a healthy financial history as well. For college students, graduates, or those with limited/no credit, becoming an authorized user can be a positive kickstart to your credit history. No matter what option you choose, when it comes to starting from scratch, it will take patience and consistency when it comes to building credit.
Credit Card Options for Those No Credit
Here are some credit card options for those looking to build or rebuild their credit score and credit history:
Discover it® Student Cash Back Card
Discover It® Student Cash Back Card is a great starter card for college student looking to establish their credit history.
- No annual fee
- No credit score required to apply
- Dollar-for-dollar match of all the cash back you’ve earned at the end of your first year.
- Cash rewards
- 5% cash back
Petal® 2 Cash Back Card
This card reports to all 3 credit bureaus so you can watch your credit grow with responsible use. On top of that, this credit card offers budgeting tools and the ability to freeze your card at any point, so you’re protected from fraud. Some other features of this credit card include:
- No fees
- A credit limit range of $300-$10,000
- 1%-1.5% cash back
- Designed to help users build credit
Discover it® Secured Credit Card
This credit card is great option for those looking to build credit for a variety of reasons. Not only is the application process easy, but this card also requires no credit score to apply and a variety of features including:
- No annual fee
- You will have a refundable security deposit that will reflect your credit line
- Earn 2% cash back
- Unlimited cash back matching
- View your credit score monthly for free
- Online privacy protection
Quicksilver One from Capital One®
This card is available for those with limited or fair credit, and you can earn 1.5% back on every purchase. There’s no limit on how much cash back you can earn, but the $39 annual fee may not work for students. Other features of this card include:
- You will not be responsible for unauthorized charges.
- Strengthens credit with responsible use
- The ability to check your credit with the Credit Wise® app
- 1.5% unlimited cash back every time you make a payment
Chime Credit Builder Visa® Credit Card
This card is great for students or people with little to no credit or those who have a poor credit rating. This card has no fees and no required credit check needed for approval. This card offers:
- The ability to create your own credit limit based off the money you move to your Chime account
- 0% APR
- Must have a Chime Checking Account and qualifying direct deposits of $200 or more