If your credit file is thin, you might consider a secured credit card or a student card.
March 12, 2019 – By Rebecca Lake
Your credit history is an important factor that issuers consider when you apply for a credit card.
But if you’re among the 62 million Americans who, according to Experian, don’t have enough credit history to generate a credit score, getting approved may be a challenge.
This guide explains the impact your credit history has on credit card approvals, how credit-building cards can help and other ways to get a credit card with no credit history.
How Credit History Affects Credit Card Approval and Terms
Your credit report is like a report card for your finances. Your credit score is a three-digit number based on factors from your credit report, like how good you are at paying bills on time and how much debt you’re carrying compared with your credit limits.
When credit card companies review your credit history, they’re focusing on specific factors that influence your FICO credit score:
- Your payment history
- Amounts owed
- Length of your credit history
- Credit mix
- New credit
Income is also considered, as credit card companies want to make sure you can repay what you charge. And it’s especially important if you’re younger than 21. The Credit CARD Act of 2009 requires card applicants younger than 21 to show proof of income to be approved for a credit card without a co-signer.
Having no credit history isn’t necessarily an automatic barrier to getting a credit card, however. Certain types of credit cards may be available to those with no history.
“Credit card issuance is not as difficult or ominous as many make it out to be,” says Jim Angleton, president of Aegis Finserv Corp., a business and financial consulting firm. Angleton says factors that can work in your favor include your income, employment history, and having a checking and savings account in good standing. Together, they can demonstrate to credit card issuers that you have the ability to pay your bills and have experience managing your money.
Just be aware that getting approved for a credit card with no credit history may not yield the best terms. You may have a lower credit limit initially or a higher annual percentage rate.
Angleton says it’s possible to improve card terms by establishing good credit habits. “The important factor for all card applicants to understand is a term used in the industry: ‘pays as agreed,'” he says. “This is how you build very good credit when you pay on time.”
Paying on time consistently could result in your card issuer automatically increasing your credit limit. You may also be able to successfully request a higher credit line once you’ve established a positive payment history. Be prepared to give your credit card company your latest income information, since that can also weigh in the balance for card limit increases.
Credit Card Options for No Credit History
When applying for a credit card with no credit history, the type of card matters. “The biggest approval factor for credit applicants with little credit history is the type of credit card they are applying for,” says Dan Wilke, CEO of personal finance site Credit Liftoff. “Applying for entry-level credit cards is the best way to establish a credit history.”
Here are some options to consider.
Student credit cards. This type of card is offered to college students who may be new to credit. They may have student-friendly terms such as rewards and no annual fee. Student credit card features may facilitate credit building by, for example, offering access to your FICO credit score.
Secured credit cards. Secured cards require a security deposit, often equal to the credit line, to open the account. The deposit is held as collateral in case of cardholder default. These cards are designed for people with bad credit as well as people with no credit. They offer a way to rebuild credit or build it for the first time.
Secured credit cards, like other credit cards, are revolving credit, which means your balance can fluctuate from month to month as you make new charges or payments. Wilke says using revolving credit is an easy way to build credit if you’re regularly making timely payments.
He cautions if you’re considering a secured card, pay attention to the fees and purchase APR so you understand the cost. It’s also important to be sure that the card reports your account activity to the credit bureaus; otherwise, you won’t get credit for good card habits like on-time payments.
Retail credit cards. Also known as store credit cards, these cards are offered by a particular retailer. They often have low barriers to approval, allowing retailers to encourage consumer loyalty, so it may be possible to qualify for a retail credit card with no credit. But it’s not a sure thing. If you are approved, you’re likely to be subject to an above-average APR and a low credit limit.
Alternative credit cards. Innovations in financial technology are giving way to some new ways to qualify for a card. For example, Petal Card and Deserve cards consider alternative approval criteria, including your banking history. Neither requires a credit history to apply but will review your credit if you have a file. Essentially, being approved hinges on having a bank account to show that you have regular income and can meet your expenses. Wilke says they can be a good option for consumers with an otherwise strong financial standing but no credit history.
Angleton says the APR could be high for some cardholders if they’re considered more of a risk. Paying the balance in full each month is a safe way to avoid paying interest charges, but it requires a certain amount of discipline when it comes to spending. Ideally, you’d only spend what you can pay off by the end of the grace period.
Authorized user status. Becoming an authorized user on another person’s credit card account is another way to get access to credit with no credit history. Authorized user accounts show up on your credit history and can improve your score if the account is paid on time and there’s a low credit utilization rate. You don’t even have to use the card to benefit from the primary cardholder’s credit habits. And you’re not legally responsible for the card’s balance.
Of course, if the cardholder falls behind on his or her payments or runs up a big balance, any negative impacts could trickle down to your credit history. While you could build credit quickly, it’s important to understand the risk you may be taking on. If you’re considering becoming an authorized user, work on improving your score enough to level up to a starter credit card in your own name sooner rather than later.
