When applying for a credit card, you may find yourself in a conundrum – you need credit history to get a credit card, but can’t get credit history without first being given access to a line of credit. It may be frustrating, but there are ways to get around this, and, yes, there are lenders who will work with you.
First things first. If you’re applying for an unsecured credit card, you may have to look around for more flexible lenders, and you should be prepared to pay higher interest rates and fees. Credit card companies 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 to gain access to that credit. Here’s how you can get an unsecured credit 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 don’t want to put any extra risk to your future applications with a negative credit check tacked on to your report.
Get a co-signer
A straightforward way to cut to the head of the line and secure a line of credit is to use a co-signer. Co-signers essentially take on the responsibility of paying back your debt if you fail to do so.
Co-signers 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 co-signer.
If you’re nervous you won’t be able to pay your bills on time, keep in mind that your late payments will affect your co-signer’s credit, too, and that if you default on a loan, both you and the co-signer will be held responsible.
Depending on the arrangement you come to, your co-signer 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 co-signer:
- Your relationship with the co-signer. Will they check in on your finances regularly, 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 at risk unless you’re positive you can handle monthly payments.
On the other hand, teaming up with a co-signer be a great option if you are committed to using an unsecured credit card for small, manageable purchases. Just be sure to have a talk with your co-signer to lay out the financial and personal terms of 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 an unsecured credit card. 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 line of credit 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.
Head to stores
Retail outlets can be a good place to start when applying for an unsecured credit card. 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 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 purchase regularly and in full, each month, and watch your credit grow.
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 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.
This will have a significant positive effect on your credit score, increasing the chances of being approved for an unsecured credit card down the line.
If you apply and are approved for a credit card with a $200 limit, don’t consider it a negative. Instead, treat it as a positive step that can help you enter the world of credit spending and building without taking on major risks.
It’s of course ideal to pay off all debt each month before interest rates rack up, but if you find yourself in a tight financial spot, it’s far better to have your credit reined in. A small line of credit 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 limit, make small purchases, pay them off on time, and you’ll soon see how your credit score rises over time. 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 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 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.