Credit Land

If you’re new to the credit industry, it can be frustrating trying to get a good rate- or even a card with a decent limit. It’s not like you’ve got bad credit, and you’re even getting unsolicited credit card offers in the mail. So how come no-one wants to actually send you a credit card? The truth is, sometimes no credit is just as bad as bad credit.

How Applications Are Considered

The most influential factor in credit card applications is the credit history. Any credit transaction you are part of is reported, along with your behavior, good or bad, to one or more of the three major credit reporting bureaus, Experian, Equifax, and Trans Union. These bureaus keep track of your credit history, and based on your typical balances, payoff rate, frequency of card use, and commitment to making payments on time, they assign you an individual credit score. This, and your annual salary are what determine whether or not your application is accepted, and what rates, fees, credit limits, and which offers you’ll qualify for.

You might think that it would work like your DMV record, where everyone starts off at the top, unblemished, but it doesn’t. If you have no credit history, you have no credit score, which means that credit card companies have no real way to statistically evaluate you as a credit risk. Most of the time credit card companies simply don’t want to bother with you if you don’t have a credit score, and that’s why people with no credit history typically get their credit card applications turned down.

But why are they turning you down, when they’re the ones who sent you the offer in the first place? Good question. This is because most credit card companies don’t fully screen candidates until you turn in a completed application. What happens is that they typically buy your mailing information from another company, or get it from any online offers you may have inquired about, and run a very basic check- if they run any- on your available purchasing history or employment status to see which credit card offers may appeal to you. Then they send out an application by mail, and wait for your reply.

Given the information you put down on your credit card application, they run a more thorough check through one or more of the major credit bureaus and use your credit score to determine your actual eligibility and so on. If a company is willing to consider issuing credit cards for people with no credit, then they’ll try to determine your credit risk by looking into your banking, employment, and residence history. Having a savings account looks good since it implies that you have enough extra income to make regular payments in the account, and the responsibility to do so.

Likewise, your regular performance with checking accounts is examined for any late payments and overdraft fees that indicate less responsible behavior. Having steady employment indicates that you should be able to maintain the income level that you need in order to pay your bills responsibly, and residence history can also imply a certain amount of personal stability- although this often works against younger people who may move frequently during or just after college.

Having residence utilities in your name- and never paying late or missing a payment- also works in your favor. Although none of these factors influence your actual credit score, they can affect whether or not a credit card company is willing to issue you a credit card, and allow you to start building your own credit history.

Credit Building Cards

If you can’t get a regular credit card, there are special credit cards for people with no credit. Many banks will offer secured credit cards to customers in good standing. Secured credit cards require an initial deposit, which becomes your card’s permanent credit limit. They work just like regular credit cards, and have all of the associated interest rates and fees, unlike debit cards, but the deposit acts as a security deposit which can be used to pay off your debt in the event of a default.

You still have to make monthly payments on any balance, and due to their nature, these cards are typically low limit, but they do report to the credit bureaus, which means that your credit history has begun. If you stay in good standing with your secured card, most banks will offer you an unsecured credit card and a higher credit limit within a year.

Some credit card companies maintain special no credit-credit card offers for students. If you can prove that you are a student with no bad credit, you can potentially qualify a low limit unsecured card right away by going through one of these companies. While this is good news if you want an unsecured card, you need to be extra careful when screening such offers, and do some serious comparison shopping, or you could end up with a ridiculously high interest rate, or fees that make paying your card off harder than it should be. Making a poor choice for their first unsecured credit cards is how many young people end up going down the road to bad credit in the first place.

Some of the best credit cards for people with no credit are retail and gas cards that are attached to individual stores or businesses, because they are typically low limit, frequently used, and paid off monthly. The low limit keeps you from spending more than you can handle. The fact that they are cards used for particular businesses is only helpful if they are businesses you like and use often, like a favorite store or gas station.

If you don’t intend to use this type of card often, and pay it off regularly, it’s better not to get it at all, since unused cards and forgotten balances can negatively affect your credit score. However, frequent use and payoff of these cards will quickly build a nice credit history or good behavior, which will be directly reflected by your growing credit score.

Once you’ve got some good credit history under your belt, you’ll receive even more credit card offers than before. And although chance are you’ll qualify, be selective and thoughtful about which ones you want to apply to. Keep the aforesaid things in your mind while you are going to apply for a credit card. Remember one more thing that good research and careful selection will allow you to make the most of the credit cards you use, and keep your credit score rolling along in good standing.