by Stephanie Spillmann 10/17/17
What to Do if You’ve Never Had a Credit Card
If you’re just over 18, a college student, or a stay-at-home parent, chances are you may be new to the world of credit. To establish credit is to ensure a healthy financial future, and a credit card is one of the primary ways to start. Opening credit in your own name builds a credit score, which will enable you to rent or buy homes in the future, as well as take out loans for cars etc.
What is Your Credit Score and Why is it Important?
First of all, your credit score can mean different things. A generic credit score is not the same as your FICO score, which 90% of all major financial institutions use as a measure for how dependable you are as a borrower. FICO is the name of a company that specializes in forecasting and analyzing the financial behaviors of individuals in order to compile scores for lenders and other financial companies. Often when you see a bank or business offering a “Free credit score” it’s usually not the all-important FICO.
The original name of the company was the Fair Isaac Co. which was later shortened to FICO. There are three major reporting agencies in our country that use FICO scoring on consumers to help predict if they’d be suitable borrowers. Information about every person’s credit is gathered and stored in long reports called credit reports, and these details help determine a person’s FICO score.
How to Get Started Building Your Credit Score
In order to have credit information gathered and reported on your behalf, you usually need a credit card of some type. Regular use of a credit card, as well as paying off the monthly balance on your bill, helps establish you as a responsible consumer. In time, the three large credit reporting agencies will have enough information about your spending and payment habits to compile it into a report and begin assigning you a score.
Your FICO score may take a little time to build, but over the first year, typically, you can expect that score to grow and stabilize as you develop your history with the credit card companies you do business with. Building credit doesn’t necessarily depend on having a Visa or Mastercard; a gas station, clothing store, or large chain store like WalMart will build credit for you as well.
Different Types of Cards to Start With
If you’re a student entering college, credit card companies love you. There are several types and brands of student cards available that will help a beginner start building credit. If you have a steady job, and can report some type of regular income, that will help prove your creditworthiness when you apply.
For other young adults, stay-at-home moms, parents, or other people who have never had a card, there are other options as well. Several banks and financial institutions offer cards to consumers who either have no established credit or very poor credit.
These cards are great to begin with or to open if you need to build on/repair bad credit. The major downside to some of these beginner cards is the very high interest rates on purchases. Always be a responsible cardholder and pay your balance off each month to avoid costly interest payments.
If you happen to bank with a credit union, sometimes they are more willing to extend credit to their customers if you have a proven banking track record with them. My oldest daughter was able to get a credit card from her credit union with a co-signature from me. That is also a great way to get started if you can’t qualify on your own quite yet.
If you find that you can’t qualify for any regular credit cards, there is the option of a secured card. This is a card that almost anyone can begin with. It requires a deposit from you, to hold as a security (with the credit institution), as a guarantee of payment. The deposit is always refundable if you cancel your card.
Secured cards are a perfect way to begin building credit if you have no credit score or proof of income. There are some secured cards that don’t even require the consumer to have a bank account. They will accept a cashier’s check or money order for the deposit money as well as the monthly payments.
Secured cards start with a low credit limit until you build up your time and history with them. Several companies and banks will even allow you to apply for a traditional card after several months. The best thing about the secured cards is almost all of them report to the three major credit reporting agencies on your behalf. As you pay your monthly bills on time for a year or more, your credit score will be well established and you’ll be on your way to becoming a trusted borrower.
To help you get started, I’ve created a comprehensive list of ten great credit cards to start with. This guide details each card with their primary requirements, and provides a quick link to each online application to make it quick and easy to apply. Happy credit building!
Read my related post: Stay at Home Moms: It’s Critical to Be Involved in Household Finances