Credit Cards for Limited Credit History

Credit cards are a great way to begin building a good credit history. If you have a very limited credit history or none at all, getting approved for standard credit cards may prove to be difficult. Luckily, there are options in the form of special credit cards specifically marketed to users who need help building a good credit score.

The Facts

A good credit score is necessary in order to be eligible for the best rates on a loan, to qualify for most credit cards, to open a checking account, and even to get a good job. Credit scores have never been more important than they are in today's society. In order to build a solid foundation for your credit, you must find a company willing to extend an initial line of credit to you. By making timely payments on any credit lines you have, you are steadily building a credit history and a good score.

Secured Cards

Secured credit cards are cards that require an initial deposit before extending a line of credit. The credit limit you receive depends on the amount you decide to pay on the card. For example, if you paid $200 for a secured credit card, your credit limit would be $200. In this way, the company protects itself from borrowers who are at greater risk of defaulting on the debt. People with bad credit, no credit or limited credit have a much higher chance of getting an approval from a company that offers secured credit cards. Make sure to choose a company that does not report the fact that the credit card is secured to the credit bureaus. This could hurt your score rather than help it.

High Interest Cards

For consumers with a lower than average credit score or limited credit history, high interest credit cards are easier to qualify for. These cards have a high interest because they are unsecured. Unsecured cards require no initial down payment on the card itself in order to extend a line of credit. This puts the lender at much greater risk, especially when dealing with consumers who do not have a history of timely payments on debts. The good news for you, however, is that high interest credit cards are ideal for someone with a limited credit history since they are unsecured, easy to qualify for, and will allow you to build your credit until you can obtain a card with a lower interest rate.

Student Cards

Student credit cards are cards marketed to college students with a limited or nonexistent credit history. These cards are a wonderful resource for those who would like to build good credit because the fees tend to be lower than those associated with secured cards, and they carry reasonable interest rates. The goal of the credit card companies that extend these lines of credit is to establish consumer loyalty with young adults who are just beginning to take control of their own finances in the hopes of winning a lifelong customer. In order to cater primarily to young adults, student cards are restricted to college students since the Equal Credit Opportunity Act states that it is illegal to turn down a credit card application based on the age of the applicant.

Time Frame

Credit scores build quickly. After you have held your new credit card for six months, you should pull your credit report and review your score. If your score is above 650, you may consider applying for a new credit card that is better suited to the average consumer and not just those who are trying to build credit. Remember not to cancel your old card since the length of your credit history, and thus a percentage of your credit score, is determined by the age of your active accounts.

References

• What Are Secured Credit Cards?
• Equal Opportunity Act: Understanding Your Rights Under the Law