It can be difficult to get your first credit card if you do not have an established credit history.
You might be wondering how you can establish credit if no creditor is willing to give you credit in the first place. It’s frustrating. In an ideal world, I would tell you credit is unnecessary but it would be foolish of me to turn a blind eye on how credit is used in our society. For example, want to rent an apartment or turn on utilities, or how about getting a better cellphone plan? You’ll need a credit history.
To start your credit history, you’ll need to get your first tradeline reported in your credit file. A tradeline is simply the record of credit accounts found on your credit bureau. A credit card would appear as a revolving tradeline on your report. It would include the name of the financial institution or company, the credit limit, date opened, balance, and payment history.
There are some methods you can do to get your first credit card and start building your credit history.
Methods to Get Your First Credit Card
Get a secured credit card
A secured credit card is secured with your cash (also known as a security deposit) in a savings account. You are unable to touch this deposit under any circumstances unless you’ve decided to close out your card.
The savings account may also earn you some interest while the credit card remains active. The deposit amount may set your secured credit card’s limit as well. With a secured credit card, the lender will report the card as a tradeline in your credit report. Your repayment history will be reported on your credit file and will eventually help you get a credit score. Once you’ve established a good repayment history and score, you may become eligible to apply for an unsecured credit card.
Many banks and credit unions offer secured credit cards. Some of the best-secured credit union offerings are from credit unions. Inquire about their secured credit cards.
Get added as an authorized user on a credit card
Ask a family or friend to add you as an authorized user on a credit card. As an authorized user, the established tradeline will be associated with your Social Security number and reported on your credit file. Your helpful family member or friend, don’t necessarily need to give you the credit card. You benefit from the shared credit information and repayment history.
A few things to keep in mind with this option. As an authorized user, you are able to use the credit card but not responsible for the payments. The payments are the responsibility of the card owner which can become an issue if you start spending and carrying a balance. Don’t put your helpful friend in a precarious situation of chasing you for payments.
After a few months, you’ll have an established credit file and have generated a credit score.
Get a joint signer on credit card
Another way to get approved for a credit card is to be a joint applicant or have a cosigner. Understand that a joint applicant and a cosigner are essentially the same things and both owners of the credit account are liable for the repayments and debt.
If the joint owner or co-signer has sufficient credit history, then the chances of getting approved for a credit card is much higher. As a joint owner of a credit card, both you and your cosigner are responsible for the repayments, as a missed payment will impact both your credit file.
Get a department store card
For new borrowers, getting approved for a department store card may be easier. These cards don’t have the Visa or Mastercard logo and only work for the specific retailer or store. They also tend to carry higher interest rates and higher fees. But can be easier to obtain as your first credit card.
What Happens After Your First Credit Card
Unless you go with the authorized user route, the credit bureaus will have the information it needs to generate a credit score after six months of credit use.
Remember this credit tip: you do not need to carry a balance from month-to-month. Pay off your balances in full each and every month. Don’t spend more than you can pay off in the month. Credit is a tool and can be used strategically. Overspending and a heavy reliance on credit lead to long-term debt and financial distress.
Download and use a free credit report monitoring tool. You want to stay on top of your credit and get familiarized with the areas that impact your score. Check out the financial marketplace for the best apps for free credit scores and free credit monitoring.