'Are there no credit cards for people with no credit history?' is the initial question asked by people who are trying to get their first credit card. The problem is that it is usually as bad as having a bad credit history. People in such a situation are also perceived as high risk and get very high interest rates on their credit cards, if indeed they manage to get one. Let us work through a few ways to circumvent the above question.
Credit History and Its Implications
Credit history is essentially a detailed account of an individual's previous debts and repayments. It takes into account all the delays and defaults to generate a fair picture of the individuals creditworthiness. In other words, if an individual has a bed credit history, he is considered a high credit risk and will be asked to pay higher interest rates and bear stricter terms on all his debts, if he gets them at all. On the other hand, someone with good credit will be a low credit risk and so will be flooded with offers of credit on lenient terms and better rates.
If you are on the wrong side of the track with your credit history, it is still possible to correct it, but what happens if you have none. What if your only drawback is that you have no credit history? What happens then? With no measure to gauge your credit worthiness, credit card companies take the prudent way out and categorize you with the bad credit people, in the high risk category. The only way you can get them to change that is to build credit history as soon as possible, and a good one at that.
Todd Meagher, the president of a well-known financial website, has the following advice: "The best way to get credit is to be in debt". Let us find out what that means and try to go about your query by showing you how to get one for yourself, in as little as 6 months.
How to Go About it?
If you are a student with no income and are applying for a first time credit card, you have very limited options to get yourself one on good terms. You may have to wait a while before you create your own credit history, to prove to the credit companies that you are responsible and reasonable with your credit. The following are some of the things that can get you your credit card, despite having no credit history.
- Get in debt: I promise I am not out to sabotage you and this is genuine advice. The one way to create favorable credit history is to create debt and repay it immediately or well within the stipulated time. Credit bureaus like Equifax and Trans Union do not really monitor your rent or insurance payments until something goes wrong with them. So even if you have been the good Samaritan for ages, there is a high probability that you have not been noticed. Get them to notice you (and your good creditworthiness) by generating a debt and repaying it properly. Make sure you repay it on time though, or the late payment will give you credit history that you do not need, one stating you as a bad credit risk.
- Credit Card Applications: Whenever you apply for a credit card, your credit report is pulled out for a review and this is bad news for you, no matter what the outcome (if you've got the card or have been denied). The more times your credit report is pulled out for review, the more marks you have on your credit report, as the bureaus assume the worst about you. Stop applying to every God forsaken credit card company to grant you a credit card, you'll start looking credit desperate. Not good! Apply for only one and only after you're sure you've generated enough good credit history to get your application accepted in the first go itself. Kelly Snowden of the American Credit Consulting claims that each credit history inquiry deducts about 2 to 5 points from your credit score.
- Credit Report Glitches: There are many online websites that give out free credit reports. Go get yourself one, and check if it is clean. If there is an unfair claim made against you, for when you were a minor, or if the due was supposed to be settled by another party, get it corrected immediately. Your efforts will all go in vain if you retain the bad reputation on your credit report.
- One Bank, Your Bank: If you are working and have an operational savings account, apply for your credit card from your bank first. If you have worked for the same employer or have stayed at the same address for long, your bank will consider you safe enough to give you a try. Your limit may be as low as $200, but something's better than nothing. Pay off your credit card dues on time, before any interest becomes due (then you don't have to bother about the high rates they will charge you with) and watch your good credit history build itself. The credit card settlement must be done on time, or your bad credit history will be far worse than having none at all.
- Store Cards or Gas Cards: If your bank is not interested in backing you, try your local departmental store or gas station. Departmental store cards and gasoline station cards are very easy to get and if you keep up the good work of paying on time, you'd have built your own credit history in just a matter of months. Make sure your timely payments get reported to the credit bureau, that's the agenda after all.
- Bank Programs: Many banks have programs that help you in building a favorable credit history and you can use one of them for your own. The banks offer you loans that you must repay before the loan is actually made. This bogus loan ranks as a loan fully paid within the stipulated period and so generates good credit history for the user. The bank will of course charge you a little something for their help, but it is money well spent, don't you think?!
- Pounce On Your Offer: If someone offers you a credit card, take it up even if the interest rate is high. The interest rates won't matter if you make all your payments in time and you will get the bonus of generating a good credit history as well. Don't forget to renegotiate your interest rates once you have proved over a period of months that you are actually responsible with your credit facilities.
- Secured Credit Cards: A secured credit card is not only the quickest way to get a credit card (with the least amount of hassles), but is also a good way of building a good credit history for the individual. The individual is asked to create a savings account with a predetermined deposit amount (or even a CD) and this is frozen in return for a credit card, till the user continues his credit card use. This frozen account takes the default risk out of the credit card payments, as any default is compensated with the amount in the account. Yet, if you wish to build a good credit history and get the secured card converted to an unsecured one, I suggest you make all the payments in full and on time. Bounced payment checks are the worst thing that can happen to your credit history and then you might end up reading articles on 'how to get a credit card with bad credit history'. Check out all the contract details for any other fees and penalties, before you rush and agree to a secured credit card.
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