At a Glance
It’s important to consider your credit history when applying for a credit card. For those with no credit history, your options can be limited. But there still are many choices designed for beginners.
Tips for searching for a credit card if you have no credit history:
Starter credit cards
Finding the right first credit card is situational. Here are options that people with limited or no credit history have:
- Student credit cards: These are designed for college students who are new to the credit game. Student credit cards don’t need an upfront deposit like secured credit cards do. You need an independent income if you’re under 21 to qualify, though.
- Secured credit cards: With this type of card, you make an initial deposit, which then serves as your credit limit. You generally need at least $200 for your refundable security deposit. From there, secured cards are like regular credit cards.
- Retail credit cards: Retail credit cards, also known as store credit cards, are offered by a particular merchant. While it’s possible to get approved with no credit or limited credit history, keep in mind that the benefits are often for loyal customers. These cards also may come attached to a higher annual percentage rate (APR) and lower credit limit.
- Alternative credit cards: Alternative credit card issuers are trying to make it easier for people with no credit history. Instead of reviewing your credit history, they review your bank account, income, and employment information.
- Become an authorized user: If you’re close with someone who has a good credit history and is willing to add you to their account, this could boost your credit.
Secured vs. unsecured credit cards
Unsecured credit cards don’t need a deposit. Without a deposit, though, it’s harder to get approved. Unsecured credit cards for people with no credit history also come with higher fees and lower spending limits. Unlike with a secured card, you can’t increase your credit limit just by spending more.
How to qualify for a starter card
For starter cards, you don’t have to have credit to be approved. You may not even need a social security number. You’ll likely need at least a mailing address in the U.S., some source of income, and a bank account (either checking or savings). There may or may not be income requirements based on your age.
- If you’re under 21: You’ll need to prove that you can make payments on your own, otherwise you’ll need a cosigner. Your cosigner will need to be at least 21 and will assume responsibility for your debt if you’re unable to foot the bill.
- If you’re 21 or older: You still have to report your income, but you’re allowed to list any income that you have “reasonable expectation of access” to, according to the Credit Card Accountability Responsibility and Disclosure Act (CARD Act).
What to look for in your first credit card
There are three major things you’ll want out of a starter credit card. A card with rewards or no foreign transaction fees would be an added bonus.
Reports to all major credit reporting companies
Make sure the credit card you’re targeting reports to all three of the major credit reporting bureaus: Equifax, Experian, and TransUnion. This will ensure that your habits, like making timely payments, are recorded and will show up in your credit report.
No annual fee
With no credit history, you can find cards that offer no annual fee. This makes it easier to keep open even as you move on because it won’t cost you anything. Preserving your length of credit history is beneficial to your credit score.
Path to upgrading
Cards that offer better terms as your credit improves are ideal for those with a limited credit history. Some may give you a higher credit line. Some may let you upgrade to a card with better rewards.
In other cases, you may need to request a product change. This allows you to switch from one card to another with the same creditor while keeping the same account. But you won’t have to go through another hard inquiry or “hard pull.”
How a limited credit history can affect you
Credit card issuers aren’t the only ones who look into your credit history. Your employer, your landlord, even your utility company may take your credit into consideration. Limited credit history or no credit history can work against you in many ways:
- Higher interest rates
- Difficulty getting a mortgage
- Possibility of being denied credit
- Trouble getting approved to rent an apartment
- Affect the chances of getting hired
- Risk of missing out on a small business loan
- Potential of dealing with higher insurance premiums
Best practices for your starter card
The following tips can help you build good credit while using your starter card:
- Make timely payments in full if you can to avoid interest charges. At the very least, make the minimum payment each month.
- Keep your credit utilization ratio low. Credit utilization is the amount of money you owe. The general rule of thumb is to use less than 30% of your credit limit. But the reality is, to have a good credit score, you’ll want to use significantly less.
- Keep your account open and active, even when you’ve moved on to green pastures.
- Track your statement for possible mistakes.
- Check your credit score
- Request your annual credit report. The Fair Credit Reporting Act (FCRA) requires the three major credit reporting agencies to provide you with a free copy of your credit report once a year.