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If you have no credit and are trying to get your first credit card, you need to look in the right places. The easiest credit card to get without having a credit history is a secured card or a card that uses a nontraditional underwriting process to review your application. In either case, the card issuer has created a card for people who don't have a credit history—or have a poor credit history—and is open to working with applicants like you.
Which Credit Card Can I Get if I Don't Have Credit?
Some credit cards for people who don't have any credit history are loaded with fees and offer few, if any, perks. But that's not always the case. Here are a few of the best cards to consider.
Petal will consider your credit history if you have one. If not, you can link your bank account, and Petal will make a decision after analyzing your account's history. The Petal Cash Back Visa® Card doesn't have an annual fee, late payment fee or foreign transaction fees, and you can earn 1% cash back on all your purchases. The cash back rate increases to 1.25% after you make six on-time monthly payments, and to 1.5% cash back after you make 12 on-time monthly payments.
If Petal approves your application, your credit limit could range from $500 to $10,000, and Petal will report your payments to all three major credit bureaus (Experian, TransUnion and Equifax). Your annual percentage rate (APR) will also depend on Petal's review, and it could be lower than many secured cards. Even so, it's best to try to pay your bill in full every month to avoid paying any interest.
When you apply for the The OpenSky® Secured Visa® Credit Card, the card issuer will not check your credit history. Additionally, you don't need to have a checking account—a requirement for some other secured cards.
As with other secured cards, however, you will need to send OpenSky a refundable security deposit ($200 minimum), and your security deposit amount will become your credit limit. The card has a $35 annual fee and a high APR, which could make it a more expensive option than other cards, particularly if you revolve a balance.
The Discover it® Secured card doesn't have an annual fee or foreign transaction fees, and it waives the first late payment fee (it's up to $39 each time after that). You'll earn 2% cash back at gas stations and restaurants (on up to $1,000 in combined purchases each quarter) and 1% cash back on other purchases. But this card's high APR makes it a poor choice if you think you might revolve a balance.
Discover will attempt to conduct a credit check, but you may still qualify even if you don't have a credit history, as long as you have a bank account. There's a $200 minimum security deposit, although you can provide more if you want a higher credit limit. After eight months, Discover will review your account and may refund your security deposit and let you keep the account open as an unsecured credit card.
The Difference Between Secured and Unsecured Credit Cards
Secured credit cards are backed by a required refundable security deposit, which reduces the lender's risk and makes it easier for people who don't have credit—or who have bad credit—to qualify. This typically makes them easier to get than unsecured cards, which have no such requirement. Some card issuers don't even require a credit check for their secured cards.
The credit limit on a secured card is usually equal to the security deposit. You may also be able to send a larger security deposit if you want a higher limit. With unsecured cards, the issuer may determine your credit limit based on your credit history and the information from your application.
Your security deposit won't go toward your monthly payments: You still have make regular payments or you could be charged a late payment fee and wind up with a late payment on your credit reports. Because payment history is the most important factor in your credit scores, you don't want that to happen whether you have a secured or unsecured card.
If you stop making monthly payments, the secured card issuer may close the account and keep the security deposit to cover the unpaid balance and fees. An unsecured issuer may send your account to collections, or sue you for the remaining debt.
When it comes to using your credit card, secured and unsecured cards work the same way—merchants might not even know if your card is secured or not.
How Can I Build Good Credit?
Once you get your credit card, use it responsibly so you can build good credit and avoid interest charges. Managing a credit card wisely can be one of the most effective ways to establish a positive credit history. Here's how:
- Use only a small portion of your available credit. To build credit, you generally want to keep your credit card balance low relative to your credit limit. This is known as your credit utilization rate or ratio, and it plays a large part in your credit scores. To determine your utilization ratio, divide your credit card balance by your credit limit. For the best scores try to keep your utilization rate below 7%.
Often, card issuers report the balance around the end of the statement period, which may be a few weeks before your bill's due date. If you use a large portion of your card's available balance one month, try to pay down the balance before the end of the statement period to decrease your credit utilization. Ideally, pay your bill in full every month to avoid interest charges.
- But do use your card. While you may think that not using your credit card is a good thing, if you never make purchases with it, your card issuer could close the account. Using your card regularly—and paying off the balance—shows future lenders that you can manage credit without getting yourself into financial trouble. If you're mainly using your new card to build credit, consider putting one of your monthly subscriptions on the card and paying it off every month.
- Make all your payments on time. Payment history is the most important factor in calculating your credit scores, and making all your payments on or before the due date will help you build a positive credit history. On the other hand, one late payment can damage your credit. Even if you use your credit card more than you anticipated one month and can't afford to pay the entire bill, as long as you make at least the minimum required payment on time, your card issuer will report your on-time payment to the credit bureaus.
Weigh Your Options
While being new to credit can limit your options, fortunately, many credit card issuers are willing to work with people who are building credit for the first time. The cards above are some of the best picks, and another option is to see what cards your bank or credit union offers, particularly if you've had an account there for a long time. Sometimes, banks and credit unions will consider your history with the organization when reviewing your application for a new credit card.
Once you have a list of cards you're considering, compare features, fees and benefits to make sure you're getting the best card possible for your needs. With a little research and some good financial habits, you'll be on your way to building a solid credit history.