4 Paths to Get Your First Credit Card Without a Credit History
At a get-together with friends, I got to talking about finance (as I do 😉). A friend of a friend there asked me about how he could get his first credit card. He’s never had one before and has no credit history to speak of, so actually getting around that hurdle was difficult. A credit card and credit history link is very much like the job/experience doom loop: you need experience to get a job, but you need a job to get experience. To get a credit history and credit score, you need a credit card; but you also need a credit score to be eligible for most cards. Not very easy to bust out of that spiral.
This friend is in good company: Bankrate says there’s up to 45 million people in the US who have zero credit history. If you’re one of them and would like to gracefully sidestep that stat, let’s talk about how to get that first card without any sort of credit history.
Why you want to have credit
Up until the mid-90s or so, cash was the default for purchasing your everyday items. It took some years for credit cards to dominate the scene, which they most definitely do in the 2020s. What’s also changed is how influential your credit history is for big-ticket purchases.
Real estate is a big one. I needed a credit history to qualify for my current apartment. My good credit score most definitely gave me an edge over other apartment applicants; this was big, considering my Hollywood apartment is below market rate at $1,750 a month. As a renter, a (good!) credit history can net you much better housing costs for the quality of your living space.
Are you ready to stop renting and go into home ownership? You will need a credit history for that too if you’re getting a mortgage. Paying all in cash might not help you there either; during my real estate days, there were cases where having no credit history was enough to take you out of the running, no matter how much money you were putting down. (And not for unsound reasons, either.)
As if housing wasn’t enough, your credit history can also impact your insurance rates and – get this – your future job. As shitty as it is, having credit history is a requirement to having a good time in today’s society.
How to get approved when you have zero credit history
Before getting into this, know that building credit doesn’t happen overnight; it takes months or years. I first got a credit history thanks to taking out student loans (more on the loan route below). If I chose to start building credit history from nothing today, here’s the other routes I’d consider.
1. Secured credit cards
These are credit cards to specifically get you started building credit. Unlike regular credit cards, a secured card requires an upfront deposit that acts as your credit limit (i.e. how much money you can spend with that card). Some of them have the potential to becoming unsecured (or, become a regular ol’ credit line) after you’ve dutifully paid off the card for several months. I’m shouting out Bankrate again which has a list of good secured credit cards to look at. Two of the cards on the list – the Discover It and Capital One Quicksilver – are ones that were my first credit cards years back.
2. Are you in school? Look into student credit cards.
Credit companies also offer cards geared towards college students with no credit history, including Discover, Capital One, and Chase. Assuming you fall into this demographic, one of these will work great.
3. Become an authorized user on someone else’s card
If you’re close with someone with a decent credit history, would also be worth adding you as an authorized user. This will require working together with the main credit account holder to make sure this works out for you both. But if you both trust each other, this might be the easiest path to getting a credit history.
4. Get a SMALL loan from a credit union, then pay it off
Get a SMALL loan from a reputable credit union. A TINY loan. Not “a small loan of a million dollars” but literally a loan for $500 or $1,000 that you will be able to pay off painlessly. This is one of the few times you’ll see me recommending getting a loan, and it’s because a loan will help you establish a credit history as a loan is considered a line of credit. Better yet, it will stay in your credit history after you pay it off fully and close it. This means you will have something permanent in your credit history; you then officially have a credit score.
Credit card best practices: Pay. It. Off. Every. Month.
Once you do have a credit card, it’s time to use it responsibly. This is NOT free money. The only time it would be is if the card comes from your rich, neglectful parents who don’t care about teaching you financial discipline. What you most want out of a credit card is its ability to grant you a good credit score. To get a good score, you cannot be using it with reckless abandon.
A good rule to set for yourself in this case would be: whatever you use the credit card for, make sure there’s enough money in your bank account to cover it. If you have $100 in your bank account, there is no way you should spend more than $100 with your card. This is because your credit card company is going to send you a monthly statement, which lists out your credit card expenses and a request to pay your balance. PAY THAT FULL BALANCE ASAP.
Only paying the minimum balance will force you to carry the rest of that money over into the next monthly statement. That will rack up extra money you now owe in the form of credit card interest. Do not fall into that trap; just use the card for what you know you can afford. Using it for just one coffee each month works if you need to work up to it. There’s one card I only use for my phone bill and car insurance. I pay them that money monthly and avoid all potential fees. Whatever works best for you to stick to this discipline is what you should do.
Again, PAY IN FULL. Do Not Carry a Balance!
I’m being anal on this point because those that don’t pay in full are those who end up thousands of dollars in credit card debt. I cannot stress this enough: to have a good credit score, you will need to pay off all of your credit card expenses completely, month after month after month after month.
If someone tells you differently, they are either ignorant or want you dead in prison. In the past, I had a manager tell me to carry a small credit card debt for a few months “to show them you can manage debt”. I like to think he was simply ignorant to the fact that his advice is DEAD WRONG. Your owning the credit card IS showing companies you can manage debt in the first place. All carrying debt will do is make the credit card companies richer. Honestly, your money can be put to better use than lining their pockets.
You’ll see your credit score rise more and more with each passing month you pay 100% of what you’ve spent. The more experience you have with credit cards, the more you can make credit cards work for you. Once you venture into the world of advanced credit cards, they can help you save money for some crazy vacations to boot! Given enough time and good habits, you’ll quickly forget a time that building credit was a concern at all. Godspeed on your brighter future!
Header image credit: Wikimedia Commons