How to build credit if you have never had a credit card before

May 03, 2017
It can seem like a problem that has no solution. You want to get your first credit card, but to qualify for a good card with a low interest rate, you have to have a credit history.
How to build credit if you have never had a credit card before

How can you build a credit history if you cannot get approved for a card because you do not have a credit history?

The bad news is that it is almost impossible to get a good card with generous rewards and a low interest rate as your first credit card. The good news is that it is quite easy, if you follow basic money management practices, to build a credit history that will eventually allow you to apply for (and be approved for) the best credit cards.

Two choices for novice credit card customers

There are two common options for people who are new to credit cards.

The first is a secured credit card. As its name suggests, this card requires a security deposit. This means that you must put money into your account before you can use your card.

Basically, if the cardholder defaults on a payment, then the card company can use this initial deposit to get their money anyway. This helps them offset the risk of offering credit to someone with no credit history.

The second type of account that novices can apply for is a card with a low spending limit and a very high interest rate. The high interest rate is another way that card companies can offset the risk of offering credit to people without a financial record.

How do these cards help you?

Both these options are ideal for building a credit history because everyone gets approved AND the companies that issue these cards report regularly to credit bureaus like Equifax and TransUnion. So as long as you make payments on time, you will not only be building a credit history, you will be creating a very positive financial record that will allow you to someday qualify for the best credit card offers.

Since the interest rates for these “novice’s” credit cards are very high, you should pay off the entire balance each month so that you do not get hit with expensive interest charges.

Another option to consider

Another option is to get a store card. Many large retailers (department stores, for example) will offer their own charge card. Like the two other options we just mentioned, store cards have high interest rates. However, they also report to credit bureaus and, best of all, you can often pay off the card balance right at the store (instead of going online or waiting for a paper bill). This means you can make a purchase and then pay it off quickly with cash so that you do not run the risk of forgetting to pay it by the due date.

What to do if you need cash fast?

Another option for people with no credit history is to get an online personal loan. These loans do not usually require a credit check. Rather, the loan company will ask to see a bank statement and recent paycheck stub. If you need to borrow money and you do not have a credit history yet, online loans are the most convenient option.

If you follow these tips, you will be able to build your credit history and eventually apply for cards with generous rewards and low interest rates.