For better or worse, it seems credit cards have earned a less-than-favorable reputation among many Americans. According to a 2014 survey from Bankrate, as many as 63 percent of Americans1 ages 18 to 29 said they do not have a credit card. While they may not be right for everyone, credit cards can be useful tools for those looking to build a history of credit. Maintaining an active credit card account, while using a small amount of your available credit and making sure to pay the full balance every month, is an easy and affordable way to build credit. After a few years of responsible credit use, getting a loan for a home, car or other major purchase can be much easier. Some apartment rental applications and employers also check credit history.
However, to successfully apply for a credit card, you almost always need some credit history to begin with. If this is your main impediment toward building your credit history, there are several options available to you.
Secured credit cards
One of the primary reasons people are rejected during credit card applications is a lack of credit history. Without adequate information on your borrowing habits, credit card companies see you as too much of a risk and won’t allow you to open an account. Secured credit cards offer an alternative for those with bad credit or none at all. Secured cards require a small deposit equal to the total credit limit before the account can be opened. This amount usually ranges between $200 and $500.
After paying off the balance for a short time, this deposit is usually refunded and the card will function like a normal credit account. You’ll also establish a sizeable credit history. According to U.S. News and World Report, responsible use of a secured card2 can nab you an unsecured account in as little as nine months. These cards can also function as great tools for learning how to effectively utilize a credit card. Think of a secured card as a “practice round” for the real thing, as well as any future installment loans you might use.
Even though the card is “secured,” it’s important to remember they aren’t foolproof. Failure to pay off balances will still result in interest charges or late fees. U.S. News & World Report also noted that secured cards lack the rewards that come with unsecured cards, like cash back or airline miles. If you’re looking for a quick and relatively easy way to build credit, however, this may be a small sacrifice for a good payoff.
Get a cosigner
If a secured credit card doesn’t sound like your cup of financial tea, you may want to consider including a cosigner on your application. According to NerdWallet, including a cosigner with a good credit score3 and history of income can make all the difference in your application for a card. Unfortunately, they also noted that many major credit card issuers don’t offer the option to add a cosigner. That just means you may have to reconsider if you’re gunning for that one special card with the great deal on rewards points. A few major companies, like Bank of America, Discover and Wells Fargo do allow for cosigners, however.
A cosigner on a credit card account is jointly responsible for paying the balance, along with the main cardholder. Having a cosigner will increase your chances of being approved. If your preferred credit card company doesn’t allow for cosigners, however, NerdWallet suggested another option: getting added as an “authorized user.” If someone – a parent or spouse, for example – with a good credit history can open an account as a primary user, they are usually able to set another person as a secondary user. Any authorized user other than the primary account holder is not responsible for payments, at least in the eyes of the credit card company. The authorized user is documented and will gain credit for using the account, but they won’t gain credit nearly as quickly as if they were a primary user, according to NerdWallet. For those looking to establish good credit card habits, this may be a sound option.
The views expressed by the articles and sites linked in this post do not necessarily reflect the opinions and policies of Cash Central or Community Choice Financial®.
1Rossman, Ted. (2022, Mar 4). Retrieved from: https://www.bankrate.com/finance/credit-cards/playing-your-cards-right-younger-millennials-late-to-the-credit-cards-party/
2Kissell, Chris. (2018, Jul 24). Retrieved from: https://money.usnews.com/credit-cards/articles/how-to-convert-a-secured-credit-card-to-an-unsecured-card
3Luthi, Ben and Palmer, Kimberly. (2023, May 31). Retrieved from: https://www.nerdwallet.com/article/credit-cards/which-credit-card-issuers-allow-cosigner