Building credit can seem like an impossible feat if you’ve never had a credit card before. It may seem even more daunting if you’re trying to improve your credit after not caring for it in the way you should.
Continue reading to learn more about how your credit can impact your lending options, as well as some tips and tricks you can use to get a credit card even if you have no (or poor) credit.
Your credit score can have a major impact on your ability to access credit and the terms and interest rates that are offered. This score can range from about 300 to 850 and is based on several factors, including:
Generally, the older your credit history, the lower your credit utilization rate, and the fewer credit inquiries you have, the higher your score will be. You’ll be able to qualify for more loans and more favorable loan terms.
Any derogatory remarks like a mortgage foreclosure, bankruptcy, or account in collections will send your score tanking. And unfortunately, if you don’t have any credit—for example, you’ve just turned 18 or your prior accounts have been in a parent or spouse’s name—this lack of a credit score can make it harder to qualify for a loan. Fortunately, it’s not difficult or expensive to begin to build credit.
There are a few things you can do to get access to a credit card now while also building your credit.
A secured credit card requires you to first deposit a certain amount of money before you can use your card to make purchases against this deposit. A secured credit card is a lot like a debit card, except that it helps you build credit. It’s also impossible to spend too much on a secured card—you’ll only be able to spend the amount deposited when you opened the account.
For this reason, a secured credit card can be a good option both for those who haven’t yet had a chance to build credit and for those who are trying to rebuild their credit after a bankruptcy or other credit event.
Not all credit cards allow a cosigner, but some do. A cosigner agrees to take responsibility for your credit card debt if you’re unable or unwilling to pay.
For example, if you have a $500 balance and haven’t made a payment for two months, instead of suing you for the balance, your credit card company may instead lean on your cosigner for payment of the entire $500 plus costs and fees.
Retailer credit cards—such as those offered by department stores, big-box stores, and sporting goods stores—often have looser approval factors than other types of credit cards.
These cards generally have a lower limit than traditional credit cards but may also carry a fairly high interest rate. But as long as you don’t carry a balance on this card from month to month or use it to make purchases you don’t need, a retailer credit card can be a good stepping stone on the way to a standard credit card.
If you have a family member or other loved one with good credit, it might be worth considering whether you can be added as an authorized user to one of their cards. This allows you to piggyback off their good credit, eventually giving you the credit you need to get a loan or credit card on your own merit.
Unlike having a cosigner, being an authorized user means that the primary cardholder is still responsible for making sure the card is promptly paid.
But be careful—being an authorized user can cut both ways. Because the card will show up on your credit report just as though it was yours, it’s important to only become an authorized user if you trust the other person to pay their bills on time. If the main cardholder defaults on this credit card, it could harm your credit. If the cardholder maxes out the card, this could lower your score by increasing your credit utilization rate.
There are more than 1,500 different credit cards available. With this variety, quite a few cards are targeted specifically toward those with no or poor credit. These cards often don’t have the same favorable terms as other credit cards; but many of these terms, like the interest rate, won’t make any difference if you don’t carry a balance on the card.
Whether you choose a secured card, a retailer credit card, or something else entirely, there are a few things to remember during your credit-building process.
If you’re ready to start looking for your next credit card, look no further than Partners Financial Federal Credit Union. We offer members credit cards with no credit to help you get started on building financial health.