If you’ve never had a credit card before, you have no credit history, which can make it difficult to get your first credit card — which makes it difficult to build a credit history!
Option #1: Get a catalog credit card
Catalog credit cards are cards tied to a particular shopping catalog or Web site. When you are approved for a credit card with one of these companies, you can only make purchases from that company. However, these companies are much more open to working with no credit or bad credit customers. Some of them report to the major credit bureaus, which could help you improve your credit score if you make your payments on time. Catalog credit cards include:
- – Internet/catalog retailer with a long history of working with people who’ve had “credit challenges in the past.” Offers an unsecured credit card to let you finance items from its extensive catalog of clothing, electronics, home furnishings, more. Reports your payment history to credit bureaus.
- – Online retailer offers credit specifically for its collection of products. Credit lines may be low at first but there is a possibility of an increased line of credit if you make your payments on time.
Option #2: Get a secured credit card.
Secured credit cards are often difficult for people to understand because they get them confused with debit cards which are totally different.
A secured credit card is a MasterCard or Visa, and it works just like any other credit card except for one thing: you must put down a security deposit to get it. You make a deposit and the card company gives you a credit limit equal to the amount of your deposit. The important thing to understand is that you’ll pay off your credit card balance every month just like you would with any other credit card — the deposit you made is not touched; your payment does NOT come from the deposit.
Then why make the deposit, right? Two reasons:
- The bank has a safeguard if you don’t pay your bill. They will only use your deposit if you fail to pay.
- You need to build credit. So, you give the deposit as collateral in exchange for the opportunity to use the credit card and build a credit history.
The good news is that after you successfully use the secured credit card for a while (usually at least a year), you can often qualify for a regular, unsecured credit card that doesn’t require a deposit. In that case, you can close the secured card and your deposit will be returned to you. Sometimes the bank that gave you the secured card is so happy with you that they simply return your deposit and let you continue to use the credit card — your good payment history has made them trust you!
Many major banks offer secured credit cards, and successfully using your secured card means you’re also building a relationship with a bank that has a strong reputation. We offer a list of secured credit cards here. (Note that some banks charge a small annual fee on their secured cards that is separate from the deposit.)
For no-credit customers, we actually prefer secured credit cards as the best way to build a credit history. We only list them as the second option on this page because many people feel they can’t or won’t put down a deposit to build their credit. If you’re willing, though, it can actually be cheaper in the long run because you more quickly can qualify for a lower-interest credit card. Plus, unlike most store cards, secured credit cards are Visa or MasterCard cards, meaning they are accepted widely.
No credit no more!
Whichever route you choose, having no credit is not a permanent roadblock. There are many banks willing to work with you, and soon your no-credit days will be a distant memory.
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