Best Credit Cards When You Have No Credit
You need a good credit history to get a good credit card. The best premium credit cards are reserved for individuals with the best credit scores and the highest incomes, but what if you have bad credit or no credit? What are your options when your credit is low, the best credit card issuers are turning you down and it feels like you have nowhere to turn?
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Believe it or not, there are a multitude of credit cards available for borrowers with no credit, and if these cards aren’t quite what you’re looking for, there are a few other options as well.
The Best No Credit Cards
What follows is a selection of our highest-rated credit cards for no credit borrowers. We have considered card details such as interest rates, fees, rewards, perks, and intro offers to highlight the very best credit card offers.
Discover It Secured
The Discover It Secured card is one of the few cash back secured credit cards. Deposit a minimum of $200 to set your credit limit and unlock the card. From that point onwards, you will earn at least 1% cash back on every dollar that you spend, with 2% cash back offered on all purchases at gas stations and restaurants to a maximum of $1,000 per quarter.
At the end of your first year, Discover will match all your cash back, effectively doubling the amount that you earn. There is no annual fee and all other fees are low and non-existent as well.
The Discover It is an excellent credit card for anyone with no credit or bad credit and is the perfect way to start building credit.
- Credit Card Issuer: Discover
- Type: Secured Rewards Card
- Annual Fee: $0
- Intro APR: N/A
- Regular APR: 24.49% Variable APR
OpenSky Secured Visa
The OpenSky Secured Visa doesn’t require a credit check and has some very basic requirements, making it a great choice for no credit borrowers. There is a $35 annual fee and a minimum refundable security deposit of $200, but it has some favorable rates and is well worth considering.
- Credit Card Issuer: Visa
- Type: Secured
- Annual Fee: $35
- Intro APR: N/A
- Regular APR: 18.89% Variable APR
Capital One QuickSilverOne
The Capital One QuickSilverOne has a high annual fee, but it’s an unsecured card and it offers 1.5% cash back on all purchases, which means you’ll offset the fee when you spend just $2,600 over the year. It’s a great way to establish your credit profile and earn some statement credit every time you spend, but you need to be careful when using unsecured reward cards like this.
- Credit Card Issuer: Capital One
- Type: Unsecured Rewards Card
- Annual Fee: $39
- Intro APR: N/A
- Regular APR: 26.99% Variable APR
Citi Secured MasterCard
With a mobile app that offers online account access 24/7, the Citi card is easy to manage and monitor and is a great choice for a first credit card account. Creditworthiness doesn’t really come into it, as it’s a secured card and your initial credit line will be equal to your security deposit.
There is no annual fee for the Citi Secured MasterCard, and you can also use Auto Pay, account alerts, and other Citi features.
- Credit Card Issuer: MasterCard
- Type: Secured Card
- Annual Fee: $0
- Intro APR: N/A
- Regular APR: 23.99% Variable APR
Journey® Student Rewards from Capital One
The Journey® Student Rewards from Capital One is one of the better student credit cards on the market, with no annual fee, no foreign transaction fee, and a rewards rate of 1.25%. It is a Visa card and may offer you a higher credit line than you can get with other cards on this list.
- Credit Card Issuer: Capital One
- Type: Unsecured Reward Card for Students
- Annual Fee: $0
- Intro APR: N/A
- Regular APR: 26.99% Variable APR
What Does it Mean to Have No Credit?
No credit means that you don’t have any credit history to speak of, it’s as simple as that. You may be very young, you may have previously relied on cash, or you may be new to the United States. In any case, it means you have no trade lines on your credit report. This makes it hard for lenders to know if you’re a trustworthy borrower or not, which means many of them are reluctant to take a chance on you.
However, it also means that you have a clean slate. As soon as you get a couple of successful cards or loans under your belt, you’ll see your score improve quite significantly.
There is a misconception with no credit borrowers, who believe they automatically have high credit scores or are one step away from achieving a maximum score. This misconception is based on the fact that FICO scores can be negatively affected by missed payments, late payments, credit applications, new accounts, and lots of debt, none of which are an issue if you don’t have a credit history.
But a large part of your credit score is dependent on credit utilization. This is the ratio of debt to credit limit, and the higher it is, the more your credit score will be affected. If you have a $10,000 credit limit and a $5,000 balance, your ratio is 50%. If that balance increases to $7,500, your ratio increases to 75%.
When you have no credit, you don’t have that debt, but you also don’t have any credit limits, which means your credit score is just as poor as if you had a high credit utilization ratio.
The age of your accounts is also factored into the equation and if you don’t have an account, this aspect of your score will be null and void.
How Long Does It Take to Build a Credit Score?
Credit scores change every month and reflect all activity on your credit report. Every time you apply for a new card, open a new account and make a payment, this activity will make it to your credit report and will begin to influence your credit score.
To speed the process us, just remember to:
- Pay Every Month:The idea that you need to have a rolling balance is a myth. In fact, your score will improve faster if you clear your balance in full every month, as you’ll have less debt and more credit, and this will help your credit utilization score.
- Limit Applications:Every time you apply for a new personal loan, payday loan or credit card, your credit score will take a hit. This is also true when you apply for your first credit card. It’s imperative, therefore, that you keep applications to an absolute minimum and only apply when you need to.
- Increase Limits: Many first-time credit card users stick with the lowest limits they get and even refuse an offer of a higher limit. They want to avoid temptation and are scared their score will take a hit because they’re too impulsive. However, bigger credit limits will actually help your credit score, improving your credit utilization and allowing you to avoid being hit with a maxed-out penalty.
- Be Patient:It’s important not to rush this process. Improving your credit score is not something you can do overnight and if you try to rush it, you might make a mistake that hurts your chances. By focusing on making those payments, keeping new applications to a minimum and increasing your credit limit, your score will improve in time.
No Credit vs Bad Credit
No credit and bad credit both cause problems and make it difficult to get loans and lines of credit. However, there are some slight differences between the two and these may impact your chances of acquiring credit.
As discussed above, no credit means you have a clean slate, with nothing bad and nothing good. Bad credit means you have mostly bad, with a credit score that’s near the lower end of the scale. Due to the impact provided by credit utilization and payment history, which account for a combined 65% of your score, it’s actually very difficult to get a score this low.
You basically need to have maxed out your credit cards (if you have them) and to have a few missed payments or a bankruptcy on your credit report. A low credit score can be devastating for your chances of getting good credit cards or loans, and you may be offered very low credit limits and/or high-interest rates.
However, credit is still available and providing you play your cards right (quite literally) you can build a high score in just 6 to 18 months.
Unsecured Cards vs Secured Cards
There are many types of credit card, from balance transfer cards to reward cards; from cards designed for students to ones designed for travelers. However, these generally boil down to two types: Unsecured credit cards and secured credit cards.
An unsecured credit card is what the average borrower pictures when they think of a credit card. It’s not secured to an asset, which means the creditor can’t take your home, car or security deposit if you fail to meet the monthly payments. They can file a judgment against you, and they can also sell your debt to a collection agency and pester you for years to come, but that’s the limit of their power.
A secured card, on the other hand, requires a security deposit. This deposit then becomes the credit limit and if you fail to make the minimum monthly payment, the creditor will simply take the deposit and use this to cover their losses.
As an example, you can deposit $200 and instantly get a $200 credit limit. Every time you make a purchase, this is added to your balance and you need to make a minimum monthly payment towards that balance. All activity is reported to the major credit bureaus (TransUnion, Experian, Equifax), thus improving your credit score, and after a few months, many creditors will offer to increase your limit or move you to an unsecured card.
Once you’ve built your credit score you can make an additional deposit to improve your credit line or get your deposit back and move onto an unsecured card.
It’s one of the best ways to start building your credit and one that we recommend to anyone with no credit or bad credit.
How to Get an Unsecured Credit Card with No Credit
You need to be at least 18-years old to get a credit card and if it’s an unsecured credit card you need to prove that you have the means to pay your balance and the responsibility to use it properly. The terms are a little less demanding for secured cards, but for an unsecured line of credit, you can expect to jump through a few more hoops.
1. Check Your Credit
There is a big difference between a limited credit history and no credit history. Don’t just assume you have the latter because you have never taken out a loan or applied for a credit card.
All credit bureaus are required to provide you with a free credit check every year, and you can use these services to scan your credit report and confirm that you have no credit. You may have been added as an authorized user on a parents’ credit card; you may have an account that you forgot about.
There’s also a chance you have been a victim of fraud, in which case details such as your Social Security Number may have been stolen, sold on the dark web, and used to open accounts in your name.
2. Look for Student Cards
Student credit cards offer some of the best rates and terms for no credit borrowers and if you’re eligible for these we recommend starting here. In many cases, you just need your school email address to apply.
Look at the benefits, terms, fees, and applicable rewards for all your shortlisted cards before applying. Consider their credit building benefits and credit limits; calculate how much they will cost you and earn you, and if there are any additional perks that will make your life easier. For instance, some cards may offer free use of credit monitoring software or provide online access to your account.
Building Credit: Responsible Card Use
Your journey to good credit isn’t over as soon as you get your hands on a brand-new credit card. There is still a lot of work left to be done, so keep these tips in mind to avoid turning this opportunity into a financial disaster.
1. Look at Fees and Terms
Perks, cash back, air miles, and other rewards are great if you’re clearing your balance in full every month and have a high credit score, but if you don’t have a good score and there’s a chance you won’t repay your balance, your main focus should be the fees and interest rate.
Intro APR, late fees, and foreign transaction fees can all impact your credit account and potentially cost you a lot of money. And that’s not all, as cash advance fees may have an even bigger impact on your finances.
These fees are charged every time you make a cash withdrawal from an ATM, and you may end up paying more than you actually withdrew. What’s more, and what many cardholders don’t realize, is that these fees are also charged every time you gamble with your credit card or purchase money orders.
2. Pay on Time
You won’t receive a derogatory mark on your credit report just because you’re a few hours or days late. Federal law states that a missed payment cannot be reported until it is at least 30 days past the due date. However, that’s not an invitation to play fast and loose with the deadlines.
Responsible use of a credit card means making on time payments every single month and ensuring those payments cover the minimum amount requested. Paying $50 when you owe a minimum payment of $100 isn’t going to get you anywhere. The creditor won’t take your payment as a goodwill gesture and forgive you. It’s still classed as a missed payment because you didn’t pay in full.
3. Pay as Much as Possible
A credit card isn’t like a cellphone or utility bill. That minimum payment is not set in stone and doesn’t cover everything that you owe for that month. As the name suggests, it is the bare minimum that you need to pay, but if that’s all you pay, the debt will linger for months and even years, and in that time, you’ll spend huge sums of money.
A credit card debt of $1,000 could cost you over $2,000 if you only make the minimum payment and the lower your credit is, the more likely these high-interest charges and fees will be.
Every time you make a minimum payment, you pay all the necessary interest and at least 1% of the balance. If you add just a little extra to that monthly payment, you can increase the principal payment, thus reducing the balance.
This is key, because credit card interest compounds every single day, which means the interest is calculated based on your new balance.
For instance, if you pay 1% interest today on a $100 balance, that balance will be $101 tomorrow, at which point you’ll pay interest on $101 and not $100. Credit card companies are (thankfully) not allowed to charge such extortionate daily rates, but they use the same principle and if your balance is high it can hurt you in the same way.
4. Buy Within Your Budget
A credit card should not be used to purchase things that you can’t afford, because that means they’ll be added to your rolling balance and you’ll be paying for them for years to come. Imagine how much worse off your financial situation would be if you started buying things you couldn’t afford and paid double or triple what they were worth.
It’s an attitude that has landed millions of Americans in massive amounts of debt and it’s a cycle that’s hard to break. The easiest way to escape is to stop yourself from getting into that mess in the first place.
If you don’t have the money now and won’t have it by the end of the money, it’s an expense you can’t afford and don’t need.
5. Get Help When You Need It
The shame of debt sends many debtors into a cycle of misery and self-loathing, which leads to more new purchases and more new accounts. They dig their heads into the sand with every new credit card application and only realize the severity of their plight when their credit score hits rock bottom, their bank account empties, and debt collectors are beating down the door.
At that point, their options are few and far between and they’re one mishap away from hitting rock bottom.
To avoid getting into this mess, you need to seek help as soon as you start falling behind or as soon as you realize you have more debt than you can manage. Things won’t blow over and they probably won’t improve out of the blue; you need to be proactive.
Alternatives to No Credit Cards
Assuming you’re using a credit card to build credit, and not to make big purchases, there are several alternative options to consider. You can try these options if the aforementioned credit cards don’t appeal to you or if you are rejected for your chosen card.
If you want to build your credit score quickly, you can also try these options alongside the credit card.
Also known as a secured loan, a credit-builder loan works a lot like a secured credit card, with some key differences. These loans are offered by many banks and credit unions. You deposit money into a secured account and make payments every month. Once you have made it to the end of the loan period, you can cash-out the loan and receive a lump sum.
It may seem like a pointless endeavor, considering you only get the money when you have met all payment obligations and you have to pay interest (you will earn interest as well, but the rate you pay will offset this amount). However, every payment you make is noted by the credit reporting agencies and will help to build your credit score.
A lending circle is a group of low-credit individuals lending money to one another to improve their credit scores. The idea is quite simple: Numerous borrowers commit to paying a specific sum of money every month and this money goes to one of the borrowers.
The next month, the cycle repeats and someone else gets it. Over time, everyone in the lending circle gets a lump sum and then the cycle repeats. Again, the thing that makes this so useful is that all payments are reported to the credit bureaus.
Consider an Auto Loan
Car loans are some of the easiest loans to acquire. That doesn’t mean you should apply just for the sake of it, but if you need a new car and can put it to good use, then shop around for an auto loan and find one that offers low rates and good terms.
Bottom Line: Lots of Available Credit
Contrary to what you might think, having no credit doesn’t mean you have no chance of getting a loan or a credit card. Your options are certainly more limited, and you can’t get the big cash reward credit cards that you can get with good credit, but there are still plenty of credit card offers tailored to individuals in this position.
These cards can provide you with more freedom and flexibility than a simple debit card and checking account. The fraud liability protection is huge, and the credit building potential is even bigger. You can’t underestimate the benefits of a good credit card.
So, get out there, apply for a card, and start building credit today!