If you have no credit history, credit cards are difficult to obtain. Credit history is used to record the borrowing and repayment history of a person or company, which then, based on a number of factors, mathematically calculates your credit worthiness and or credit risk. By not having a credit history, you are considered a higher credit risk. However, there are ways of obtaining no credit history credit cards and ultimately building your credit score.
How To Establish Credit
You will need to establish credit for yourself if you do not have credit history. Some lenders may consider alternative methods of responsibility to determine your credit risk. You do not need credit history to open a checking account, so this is the first account to establish. If you can also open a savings account at the same bank you should do so. Even though this credit activity does not get reported to any of the credit bureaus, a lender may take your banking practices into consideration when determining your application for a credit card. Once you have this relationship established, it may also prove useful by applying for a credit card or loan through the same local bank.
Factors Affecting Your Ability To Obtain Credit
Another factor that can be considered is your employment history. It will be in your favor to have steady work without bouts of unemployment or multiple career changes. How frequently you move or whether you own or rent a home may also be a factor in the decision. Since you do not typically need to have credit in order to open utility accounts, another good step to take is to open some utilities in your name. Although utilities such as cable, electric, gas, phone, sewer and water do not report your credit activity to the bureaus, by paying them routinely on time you can show an established sense of financial responsibility. It is important to note that even though utility companies to not report timely payments to the credit bureaus, late payments that go to collections can be reported and will then adversely affect your credit report.
Options For Obtaining Credit
If you are still unable to obtain a credit card based on having no credit history, you may want to consider some additional options. Department store credit cards are usually easier to obtain, and while they are not usually considered a good idea, they can help you establish credit history. Before applying for the card, however, be sure the store reports your payment activity to the credit bureaus. Make a small purchase, less than 30% of the limit if possible, and then pay off the balance in full. Most of these cards carry small limits and high interest rates, so be wary of your spending habits.
Secured Credit Cards
If used wisely, a secured credit card is a great way to start building credit and almost always guarantees approval. Secured credit is linked to an asset and is commonly thought of in situations of auto loans and mortgages. If you fail to make your mortgage or car payments, the bank or lender has the legal right to seize your home or car (usually through foreclosure or repossession).
A secured credit card loans you money via credit much the same way as an unsecured credit card, but it requires a deposit that will be used to cover your debt if you default on your loan. That is why the deposit is typically equal to your spending limit. If you make timely payments, you can quickly, sometimes within a matter of months, be rewarded with an increased credit limit.
Sometimes secured credit cards can also be converted into unsecured credit cards and your deposit will then be returned to you with interest. If you are late, however, you will be charged late fees and interest, typically at a higher rate than unsecured credit cards, and frequently the amount you owe can exceed your security deposit. While secured cards can carry high APRs (Annual Percentage Rates) and sometimes monthly or annual fees, they can also help your credit score because your payment history is reported to the credit bureaus. If you use your card wisely by making timely payments and maintaining the ratio of balances owed and credit available, you can start to build your credit history and increase your credit score.
Prepaid Cards Versus Secured Credit Cards
A prepaid card is the same as a secured credit card in that both require a deposit that will equal your spending limit. Unlike a secured card that borrows against a line of credit, a prepaid card draws against the actual deposit. Since this is not considered borrowed money, it does not get reported to the credit bureaus and therefore does not impact your credit history. Prepaid cards are guaranteed approval but sometimes come with various fees, such as monthly or annual fees, set up fees, balance load fees, check deposit fees, and transfer fees.
Some prepaid cards offer rewards programs, free alerts, online checking, and overdraft protection. Prepaid cards are popular presentations for students and employees, as well as for individuals that like to control their own spending habits without the hassle of monthly credit card bills.
Compare Your Credit Card With No Credit History Options Today!
Once you start building your credit history, be sure to maintain it and continually boost your credit score. Many factors go into your credit report and what takes years to construct only takes a small effort to demolish. Use our free credit card chaser at the top of the page to view your credit card options right now. Start building your credit history today!
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