A person is considered new to credit if they have had their own loan or credit card for less than 3 years (or have never had one at all). For example, if you are a college student, new to the country, between the ages of 18 and 21, or recently divorced with no credit under your name in the past 10 years, it is highly likely that you have limited or no credit history.
Keep in mind that even though you fit the definition of limited credit, you may not qualify for an unsecured credit card if you have mismanaged the little credit that you have. If you have missed payments on credit cards, loans, utilities bills, or anything else that is reported to the credit bureaus, applying for a secured credit card is probably your only option.
A secured credit card works just like a regular credit card with one major difference: a secured card requires a security deposit, and your credit limit matches the amount of the deposit you put down. Since your credit line is tied to your deposit amount, a secured credit card will help you build credit history with low risk to both you and your lender – and your approval is guaranteed.
Assuming that you don’t have any problems on your credit report because you have either managed your credit responsibly or haven’t had any credit at all, then you can apply for an unsecured credit card. Many credit card issuers offer credit cards for people with limited credit history, made to approve this group of consumers and help them build credit. There are also credit cards specifically designed for students, branded as “student credit cards”, that are a great option for undergraduates just starting out.
If you are between the ages of 18 and 21, you should be aware of the changes in your ability to get a credit card since the new credit card law (Credit CARD Act) became effective in February 2010. The Credit CARD Act now requires that this group of consumers be able to show proof of income or acquire a co-signer in the form of a parent or legal guardian in order to apply for their own credit card, both secured and unsecured.
Please note that these are guidelines and your approval for an unsecured credit card is not guaranteed even if you have some positive or absolutely no information on your credit report. If you do fall into one of these categories, a secured credit card may still be your best option, as approval is guaranteed.
Frequently Asked Questions:
- How do I build my credit history if I have no or limited credit?
- What age do I have to be to get a credit card?
- How can I get a credit card if I’m between the ages of 18 and 21?
- What is the best credit card for a college student?
- What is a good starter credit card?
- How much does a secured card raise your credit score per month?
How do I build my credit history if I have no or limited credit?
If you’re new to credit, it’s going to be difficult for you to get a regular credit card because you have no history to indicate to lenders that you are a trustworthy candidate for credit. You can prove it to them by getting a secured credit card in which your deposit acts as collateral against your credit limit. Once you have shown you can manage a secured credit card responsibly for about a year, it is likely that your credit card company will offer you a chance to apply for a regular credit card.
What age do I have to be to get a credit card?
Eighteen is the minimum age that you need to be in order to get approved for a credit card. Until you turn 18, your parents, guardian, or some one else you are close to can add you as an authorized user on one of their existing credit card accounts. Alternatively, they can open a new credit card account and add you as an authorized user, with the agreement that you will be responsible for the bill.
How can I get a credit card if I’m between the ages of 18 and 21?
Before you start looking at your options for credit cards, you should be aware that the Credit CARD Act, effective February 2010, added new rules for consumers under the age of 21 interested in having their own credit card. If you are under 21 years old, you will need to show that you are able to make payments – in other words show proof of income – in order to open a credit card account.
The other alternative is to have a cosigner on your credit card account. This person must be 21 years of age or older and be able to prove their ability to repay the debt incurred on your credit card account. They will assume joint liability for your credit card debt, so it will have to be someone who trusts you to make your payments on time and use your credit card responsibly. If you have opened a credit card account with a cosigner and want to increase your credit limit, your cosigner must agree to the increase in writing.
Once you have either identified a cosigner or are able to show proof of income, you should focus your search on student credit cards or on credit cards for people with limited credit history. These credit cards are specifically designed for people that are new to credit and are looking for a way to start building a strong credit score. It is of course important to make your payments on time and try to keep your balance-to-limit ratio relatively low in order to have a positive impact on your credit score and report.
Some credit card companies may also have restrictions on the way in which consumers under the age of 21 can apply for a credit card. Depending on the company’s policy, this group of consumers may not be able to apply for a credit card over the phone and instead may have to apply through the mail or an online application.
What is the best credit card for a college student?
The Credit CARD Act, effective February 2010, changed the way consumers between the ages of 18 and 21 (the ages of most undergraduates) can apply for and use a credit card. Namely, this group of consumers cannot get a credit card without proof of income or a co-signer in the form of a parent or legal guardian.
This rule applies to both secured and unsecured credit cards. If you can get an unsecured card, you should apply for a credit card specifically designed for students, branded as a “student credit card”, or a credit card for people with limited credit history. Most major issuers offer both of these types of cards.
If you can’t get an unsecured card, a secured credit card is your best option. When you establish credit there are two main factors that will shape your credit report: the timeliness of your payments and your discipline in terms of not overspending. Both of these things can be hard to learn for those new to credit – which is what makes secured credit cards an attractive option for a college student, even if you can qualify for an unsecured credit card. College students can practice sound financial habits with a secured credit card at very low risk to both themselves and their credit card company. Once they have managed to pay for their secured credit card on time for a couple of years, then they can switch to an unsecured line of credit and challenge themselves to not spend more than they should.
What is a good starter credit card?
The best starter credit card is one that approves people that either have no credit history or a limited credit history (i.e. less than 3 years) AND has the lowest fees. If you are a college student, then a student credit card represents the best credit card for your needs. If you are not a college student, we recommend that you apply for one of the starter credit cards.
Finally, if you want a 100 percent guarantee that you will be approved, apply for a secured credit card. Secured credit cards work just like regular credit cards and are reported to all the major credit bureaus. The only difference is that with a secured card your line of credit (i.e. credit limit) matches the amount of the security deposit you put down – this usually starts around $200.
How much does a secured card raise your credit score per month?
There is no standard number that your credit score will go up each month if you have a secured credit card or a line of credit of any other kind. There are a wide variety of factors that determine your credit score and these factors are all based on your behavior and not on what type of or how many credit cards you have. Your credit score is calculated based on your overall credit history, not just the activity on one account.
A secured credit card works just like any other credit card, except for the deposit that’s required to open the account. If you are opening a secured card account because you have no credit, then you should see an improvement in your credit score, provided that you manage your secured account responsibly by paying your bill on time each month and being careful not to go over your credit limit.
Following these rules will lead to an improvement in your credit score. However, if you mismanage a secured credit card account by going over the limit and/or not paying your bills on time, then your credit score will drop, just as it would with a traditional credit card.
Related Questions:
Can I have a bad credit report if I do not have a credit card to begin with?
HOUSEHOLD BANK MASTERCARD IN IL. HAS CHARGED AN ANNUAL FEE EVEN THOUGH THE CARD WAS NOT ACTIVATED. THIS IS NOT ACCEPTABLE. THEY SAY ONCE APPROVED THEY CAN CHARGE YOU THIS FEE. I AM GOING TO THE ATTORNEY GENERAL WITH THIS COMPLAINT.
No need to go to the attorney general. Just call them and tell them that you are want the account closed. Since you have not made any purchases with the card and have not even activated your account they should reverse any fees that they charged. If they do not then escalate to a manager and if they still don't then for sure escalate further. Please let us know how it goes.