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Building credit can seem impossible if you’re just getting started, and that’s especially true if you have no credit at all. That’s because, by and large, credit card issuers and lenders shy away from consumers who have no credit history, since they can’t gauge your creditworthiness and have no idea how you might handle credit if you had access to it.
Fortunately, there are some unique credit card products geared toward consumers with a limited credit history, or even no credit history at all. So if you have no credit history but want to get a credit card, you should learn more about your options. Let’s take a look at how to get a credit card with no credit history, and other steps you can take to build credit over time.
What does it mean to have no credit history?
Having no credit history is different than having a bad credit score. A bad credit score means you’ve misused credit in the past, while a lack of credit history means you’ve never had access to credit at all, so there are no credit movements on your credit report. Without any information on your credit reports, lenders don’t know enough about you to make a judgment on your creditworthiness.
Also, having no credit history doesn’t mean you have a zero credit score. This is an important distinction, since a credit score of zero isn’t even possible based on the most popular credit scoring systems. If you have no credit history, then you simply have no credit score either.
However, once you do begin using credit, the credit bureaus will have information they can use to calculate a credit score for you. The most widely used type of credit score is the FICO score, and it ranges between 300 and 850, with higher scores being far superior:
- Exceptional: 800 and higher
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 and lower
If you’re not sure whether you have a credit history or a credit score, you can find out for free by using the website AnnualCreditReport.com, which provides a free report from each of the three major credit bureaus once each year. This is the only official site that provides free credit reports, so make sure you’re using the correct link when you request a report.
Once you’ve checked your credit report, if you do have any sort of information on it, you can then determine if there’s enough data to calculate a credit score for you. While there’s no official site for credit scores like there is for credit reports, fortunately, there are many ways to check your credit score for free.
You can start by signing up for a credit monitoring service that provides a free credit score, or for a program that offers free credit tracking tools. For example, CreditWise from Capital One gives consumers a free look at their VantageScore 3.0 from TransUnion, and you don’t have to be a customer to use it.
What kind of credit cards can I get with no credit history?
Without a credit history of any kind, you’ll only be eligible for a few select types of credit cards. The first is a secured credit card, which is a type of credit card that requires a cash deposit as collateral.
When you apply for a secured credit card, your initial deposit will typically be $200 or more, and the money you put down will be used to secure your line of credit. This also means that, generally speaking, your initial credit limit will be low. In fact, a security deposit of $200 typically means having an initial credit line of $200, a $500 deposit means having an initial credit limit of $500 and so on.
The good news is that with a secured credit card, you’ll get your security deposit back when you close your account in good standing (meaning you’ve paid back any credit you’ve used to that point). This is true whether you close your credit card account with a $0 balance or upgrade your card to an unsecured option from the same issuer.
There are also a few unsecured card options for people with no credit history, meaning you won’t have to put down a cash deposit, but they’re few and far between. Unsecured credit cards for people with no credit history tend to come with low credit limits and the potential for fees, though this isn’t always the case. But if you have no credit history and you’re looking for an unsecured credit card, make sure you pick one that doesn’t come with major fees.
Questions to ask before you apply
Before you apply for a credit card without having any credit history, there are several important questions to ask yourself:
- Have I checked my credit report and score? Don’t assume you don’t have a credit history without taking the time to check. It’s possible you have information on your credit report from financial institutions you’ve worked with in the past, and that you have a credit score as a result.
- Am I willing to put down a cash deposit as collateral? A secured credit card is often the easiest way to build credit when you’re getting started, although you’ll need to make your peace with putting down collateral. If you don’t have a lot of cash to spare, look for secured card options that let you put down as little as $49.
- Am I ready to take building credit seriously? Before you get a credit card, you should make sure you’re ready to prove your creditworthiness. This typically means being able and willing to avoid maxing out your credit card limit, and being committed to paying your credit card bill on time each month, and ideally, in full.
One other option for building your credit history is to get someone else with an existing credit card — such as a family member — to make you an authorized user on their account. This means their account will appear on your credit report, and you’ll get the benefit of their good credit history.
However, if that person misuses their credit, the resulting negative mark can also appear on your report, so make sure you choose someone who’s responsible with their own credit.
What to watch out for when you don’t have a credit history
Without any credit history, your credit card options will be limited and, frankly, not that great. However, it’s important to know that some credit card offers for people with no credit are exceptionally better than others. As you compare all your options, here are some pitfalls you should avoid:
- Fees: Steer clear of credit cards that charge application fees, monthly maintenance fees or high annual fees. There are plenty of secured credit cards without an annual fee as well as unsecured credit cards you may be eligible for that don’t carry an annual fee.
- High APRs: Credit cards for poor credit or no credit tend to come with much higher interest rates, or APRs. Choosing a card with a high APR may be OK, but you should strive to pay your credit card balance in full each month so you can avoid interest charges altogether.
- Yourself: Make sure you’re ready to avoid major credit mistakes right out of the gate. Most importantly, you’ll need to pay your credit card bills early or on time each month. Also avoid maxing out your available credit.
Use a new credit card to build your credit history
Whether you opt for a secured credit card or an unsecured credit card, you’ll want to know the best ways to use your card to your advantage so you can start building a credit history with it. Your first step is knowing and understanding the factors that go into determining your credit score. Here are the factors used by the credit bureaus to calculate a FICO credit score:
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- New Credit: 10%
- Credit Mix: 10%
As you can see, your payment history makes up the biggest portion of your credit score at 35%. This is why the most important thing you can do is pay your credit card bill early or on time every month. No exceptions!
The second most important factor is the amount you owe in relation to your credit limits -— this makes up 30% of your credit score. Generally speaking, it’s best to use 10% or less of your available credit at any given time, but 30% at the maximum if you want to have a good credit score.
This means carrying no more than $50 to $150 in debt if you have a $500 credit card limit, and just $20 to $60 in debt if your credit limit is $200. Since your first credit card will likely have a low credit limit, you’ll want to take special care to keep your balance very low or at $0 for the best results.
The next factor — the length of your credit history — is one you can only improve with time. New credit is determined by how many lines of credit you have applied for in the recent past, and you can score well in this category by refraining from opening too many new accounts at once.
Finally, your credit mix is another factor that can take care of itself over time. Once you have a credit history and a good credit score, you can broaden the mix of credit products you have to include revolving accounts, installment loans and perhaps even a mortgage or a car loan.
In the end, it may feel like not having any credit history is a bit of a chicken-and-egg situation — how can you get a credit card to build your credit history if lenders won’t give you a credit card without any credit history? But by strategically using secured credit cards, unsecured cards and even perhaps an authorized user account from a friend or family member, you can start yourself down the right path, and soon enough, you’ll have a solid credit history and many more credit options to choose from.
Do you have a credit score but it’s not very high? Or maybe your credit is already good or excellent? CNN Underscored has you covered with our other stories in this series:
Check out CNN Underscored’s list of the best credit cards of 2021.