When applying for a credit card, you may find yourself in a conundrum—you need credit history to get a credit card, but you can’t build credit history without access to a line of credit. It may be frustrating, but there are ways for people with no credit history to get around this. And, yes, there are banks and lenders that will work with you.
Getting a Credit Card With No Credit History
First things first. If you’re applying for unsecured credit cards, you may have to look around for more flexible lenders, and you should be prepared to pay higher interest rates and fees. Credit card issuers utilize these increased rates and fees as security against new credit users.
Over time, as you build credit and prove yourself reliable, you can find ways to adjust rates or find a different credit card company altogether that offers better rates, fees, and benefits.
In the meanwhile, you have to start building credit history to gain access to that credit. Here’s how you can get an unsecured card with no credit history.
Check to See if You Prequalify
Cut to the chase and see whether you qualify for lines of credit at major credit card companies by heading online. Many credit card companies will offer free checks to see whether you prequalify.
Unlike traditional credit checks, which can affect your credit score, these “soft checks” won’t appear on any of your credit reports. Make sure it’s a soft check before you fill out any information online. You want to avoid putting any extra risk to your future applications with a negative credit check tacked on to your credit report.
Get a Cosigner
A straightforward way to cut to get a credit card with no credit is to use a cosigner. Cosigners essentially take on the responsibility of paying back your debt if you fail to do so.
Cosigners with a strong credit history can help you gain access to unsecured credit cards, but be careful and weigh your options seriously. You’re entering a financial agreement with a credit card company as well as with your cosigner.
If you’re nervous you won’t be able to make your payments on time, keep in mind that your late payments will affect your cosigner’s credit history, too. If you default on a loan, both you and the cosigner will be held responsible.
What to Consider Before Using a Cosigner
Depending on the arrangement you come to, your cosigner may also have access to checking your purchase history, which can be uncomfortable to some. Here are a few things to consider before using a cosigner:
- Your relationship with the cosigner. Will they regularly check in on your finances or give you the freedom to use the card on your own terms?
- Your ability to pay back in full. Your credit is their credit once they sign off a loan. Don’t put others’ credit history at risk unless you’re positive you can handle monthly payments.
On the other hand, teaming up with a cosigner be a great option if you are committed to using an unsecured card for small, manageable purchases. Just be sure to have a talk with your cosigner to lay out the financial and personal terms of the agreement before you head into this kind of relationship.
Evaluate your employment situation realistically. If you’re employed part-time, it may be more difficult for you to gain access to unsecured cards. You’ll have to list your income during the application process and won’t be able to include the income of household members, including spouses or parents. This will affect your chances of getting a credit card, particularly if you’re under age 21.
On the other hand, if you’re applying for a small credit line and can show lenders that you will be able to pay your monthly bills on time, this will be a significant boon to your application.
Apply for a Store Credit Card
Retail outlets can be a good place to start when applying for unsecured credit cards. These stores often use more lax credit checks to get you started with a store credit card. Do your research when applying for one of these cards, rather than taking the first offer you come across during check out at your favorite shop. These credit cards tend to have high interest rates attached, which means your monthly bill can add up quickly if you don’t pay on time.
In fact, you may want to sign up for a store credit card at a shop you don’t frequent. It’s far more tempting to whip out a credit card when you’re at a store you go to every week. Instead, make small purchases regularly at an outlet where you’re not tempted to make impulse buys when there’s a sale on. Pay off these small purchases regularly and in full, each month, and watch your credit score grow.
Starter Credit Cards
Many banks and credit unions offer starter credit cards. They come will small credit limits of $200 to $500. These credit cards offer a way to help you enter the world of credit spending and building without taking on major risks.
It’s ideal to pay off all debt each month before interest rates rack up. However, if you find yourself in a tight financial spot, it’s far better to have your credit reined in. A starter credit card can help you manage your spending, learning not to rely too heavily on a credit card.
Remember, getting out of major credit card debt can take years of dedicated work. Don’t start off your credit history with major debt. Take that $200 or $500 credit limit and make small purchases. Then, pay them off on time, and you’ll soon see your credit scores rise over time.
Secured Credit Cards
If you’ve exhausted all of your options and are still not able to get unsecured credit cards, you may have to start looking for a secured credit card. These credit cards require a security deposit, which is refundable, usually after 12 months.
Secured cards are not ideal. However, once you’ve built up some credit history over 6-12 months by making timely payments, you can upgrade your secured credit card to an unsecured credit card with a higher credit line.
Before signing up for a secured credit card, make sure the credit card issuers reports your payments to all three major credit bureaus.
Apply for a Credit-Builder Loan
If you’re worried you won’t pass a credit check to open a credit card, consider heading to your bank or local credit union and look into applying for a credit-builder loan. Talk to these financial institutions to discuss your options to use these beginner loans with the specific intent to build your credit scores from the ground up.
If you work with a credit union or new financial institution, you’ll probably need to open a checking account to gain access to this line of credit. Be specific about wanting to open a small loan – now isn’t the time to test your resolve to pay back several thousand dollars before opening a credit card. Once you’ve been approved for a credit-builder loan, focus on paying back the sum quickly and in full.
As your payments get reported to the three major credit bureaus, it will have a significant positive effect on your credit score. This will increase your chances of being approved for unsecured cards down the line.
Here are some final thoughts on what to do once you’ve been approved for an unsecured line of credit.
Use Your Credit Card Regularly
Build credit history by utilizing that line of credit each month. Consider putting regular, small purchases such as groceries or gas on your credit card or other purchases that have already been built into your monthly budget.
Use Credit Responsibly
No major purchases unless you’re sure you can pay them off on time. That means considering the risks before you put that next vacation on your credit card. You also need to pay your bills on time, learn strong habits and, ideally, pay off your credit card in full each month.