The Starter Credit Card For People With No Credit History
There are a few reasons why someone might not have any credit history. Young people who have recently graduated from college often don’t have a credit card yet, because they’re just starting out. Recent immigrants to the US also arrive without a credit history. And then there are people who have simply never had a credit card, for one reason or another.
If you don’t have any credit history, it can be hard to be approved for a credit card. It can feel like being stuck between a rock and a hard place; on one hand, you need a credit card to build credit, but on the other hand, you can’t get approved for a credit card without any credit history.
What to do?
Luckily, there’s an answer for folks who are trying in vain to be approved for a credit card: a secured credit card. These cards are increasingly popular among young people, people with damaged credit, and anyone who has had trouble being approved for a regular, unsecured credit card.
Secured credit cards are great for this purposed, because they allow you, the customer who wishes to establish a credit history, to do so – while also protecting the credit issuing institution, in the event that a cardholder defaults on their debt. It does this by requiring the card applicant to put down a lump sum to act as collateral. That amount of money, which could be $200 or $2,000, depending on the bank and the applicant, then becomes the credit limit for the customer.
How it works
If you have a secured card, you’ll use it the same way you’d use a regular credit card. Make purchases anywhere that accepts the card, stay under your credit limit, and pay off your balance every month – in full, if at all possible. The deposit you put down will remain with the issuing bank, guaranteeing they won’t get stuck with the bill if you default.
Don’t be offended that the bank wants to be protected from you: since you don’t have any credit history, they have no way of knowing whether you’ll be a responsible borrower. The good news is, once you’ve had the card for a while and made consistent, on-time payments, you will have established some good credit history, and will likely be offered a regular, unsecured credit card – at which point, your deposit will be credited to your account.
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