The credit card catch-22: how to build credit if you don’t have it

Wednesday, July 2nd, 2014
Updated: July 2nd, 2014
The content is accurate at the time of publication and is subject to change.

People can establish good credit when they properly manage their loans and credit cards, but it can be difficult to get a loan or a credit card if you don’t have credit or your credit is bad. So how is that supposed to work? How can you build credit when no one will approve you for a credit card?

Here are the strategies that may work for you.

Becoming an authorized user

If you have a relative with good credit and he or she is agree to add you as an authorized user on a credit card, you are lucky. Being an authorized user means that this account will be added to your credit report. This can benefit your credit score as long as the payment history on the account is good. So, make sure you are added to an account with good payment history and low balance. Remember, a person who adds you as an authorized user is putting his or her credit at risk to help you. If you max out your balance and do not pay the bills, you will impact the credit score and that person will have to cover the costs.

Think big. Start small. Scale fast

Secured credit cards are often the best way for people with bad credit to improve their credit history and for people with no credit to establish a credit history. There are secured credit cards that are easy to get. They work by requiring you to put at least a minimum deposit before getting the card. That deposit (say it’s $200) is your credit imit. You use the card and make due payments just like you would with an unsecured credit card. This allows you to build a payment history and understand how credit card use impacts your credit score. The deposit is usually fully refundable, but if you don’t make payments, the card issuer will take your deposit. Shop around to find a secured credit card with the best terms.

The above strategies can work for someone trying to improve from no credit or bad credit. However, if you are dealing with bad credit, make sure you’ve considered the issues that hurt your credit.

Say you can’t get a credit card because of defaulted loans. The loans should be paid; you should make at least minimum payments. That undoubtedly destroyed your credit score. And getting a secured credit card won’t do much for your credit while you continue defaulting on your loans. When you start paying down your loans and making payments on your secured credit card on time, you will be able to move from dead point.

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