Many people use credit cards to buy goods and services. Credit card companies report your payment history to the major credit bureaus, putting you in a better position to qualify for loans in the future. But what happens when you don’t have any credit history, what can you do? Most credit card companies want to see sufficient credit history before giving you a card. Read on to learn why you might fall into this segment of people and tips on how to get started.
Why You Don’t Have a Credit History (Yet)
Once you accumulate credit history, you keep it forever. Creditors report your payment history to credit bureaus which can help your score if you pay on time. Unfortunately, not everyone has a credit history. If you don’t have credit, it could be for one of these reasons.
You’re Not Yet 18
Younger people have a more difficult path to a credit score. You can build credit before turning 18 and end up with a credit score, but it’s uncommon. Most people under 18 build their credit because they are authorized users that piggyback on someone else’s credit activity.
However, anyone 18 years or older can get into legal contracts and access more financial instruments. Being over 18 years old gives you more choices in establishing a credit history.
You’re Just Starting Out To Build Credit
People build their credit history with every on-time payment. They borrow money with credit cards, loans, and other financial vehicles. When you start building credit, you don’t have a credit history right away. Creditors must first report your payment activity to the credit bureaus. Then, you’ll have a credit history.
Using cash or a debit card to cover expenses will not build credit. These transactions don’t get reported to the major credit bureaus. However, switching to a credit card and paying debt on time strengthens your credit history. A good credit score puts you in a better position to qualify for things like a home mortgage or auto loan.
You’re A Migrant/International Student
Migrants and international students often receive debit cards to help with expenses. However, these financial transactions do not build a credit history. These students also face the disadvantages of a non-universal credit scoring system. Any financial activity overseas does not carry over in the U.S. You can have various overseas loans and responsibly repay debt. Still, it won’t establish credit history in the U.S. Your credit history in the U.S. also won’t carry over overseas.
While this lack of communication can hurt if you have good credit in your native country, this dynamic helps people with poor credit start with a clean slate. If your credit history took a hit in your home country, you would come into the U.S. with a clean slate concerning your credit history.
What Do You Usually Need to Get a Credit Card
Credit card issuers don’t give cards out to everyone. Some people can’t pay it back and have to default on their debt; however, credit card issuers don’t want that to happen. They want to make sure you adhere to a few parameters:
You have to be 18 years or older to get a credit card. If you are not yet 18, you can build credit by becoming an authorized user. Authorized users build credit history related to the primary cardholder’s activity. A financially responsible cardholder will improve an authorized user’s credit. A cardholder who falls behind on debts will also hurt the authorized user’s score.
Source of Income
An income source helps you pay off credit card debt. Issuers will want to see an income source before giving you a credit card. A higher income will warrant a higher credit limit.
Credit card companies will review your credit history before giving you a card. They want to see if you can reliably honor debt payments on time.
SSN or ITIN
You’ll need a social security number or individual tax identification number to obtain a credit card.
Factors You Should Consider in Getting Your Credit Card
Consumers can select from many credit card companies. Each company also offers several credit cards, further complicating an important financial decision. Reviewing these factors will help you find the right credit card for your needs.
Type of Card
Prospective credit cardholders can choose among unsecured, secured, and store credit cards. Each of these cards has several subcategories, such as cashback, rewards, and travel point cards. You may initially opt for a secured credit card since it’s an easier path to entry for no credit history. However, you can get more selective once you build a strong credit history.
Secured credit cards often require a minimum security deposit before you can get started. In addition, high-end credit cards have minimum spending requirements you must maintain to continue using the card. Review the requirements before applying, so you don’t get the wrong card or trigger too many hard inquiries.
Traditional credit cardholders accumulate debt. You should pay the debt back as soon as possible, but you may not make every payment on time. Late payments accrue interest, and the rate impacts how much you’ll spend. Credit cards have double-digit interest rates, but some are higher than others. Many credit card issuers offer a short-term grace period where they won’t charge interest on your credit card debt.
Fees and Other Charges
Some credit card issuers charge excessive fees to use their cards. You should review a card’s fee structure before committing to their card. Most cards charge late fees, application fees, and over-the-limit fees. A few credit cards also charge annual fees even if you pay your debt on time.
Easily Get a Line of Credit Even with No Credit History
A responsible line of credit helps you manage to spend and helps you not incur insurmountable debt due to overextending on your credit limits. Improving your credit makes it easier to qualify for essential loans that influence where you live and what car you drive. Unfortunately, most people feel held back by nonexistent credit history. If you want a credit card, even if you don’t have a credit history, Grain can help with credit lines up to $1,000.
Grain uses cash flow instead of credit history to approve you for a line of credit up to $1,000. You can sync your debit card with Grain, and the app will analyze your cash flow, adjusting credit limits to personalized spending habits. You can create a Grain account by visiting the company’s website or downloading the Grain app.
Are There Benefits for People with No Credit History?
Not really, but it’s better than having bad credit. Lenders look at your credit before giving out loans. Most lenders use credit score requirements to filter applicants and reduce risk. You probably won’t get a mortgage or auto loan if you don’t have a credit history. Even if you get one of these loans, it will come with a higher interest rate.