Building Credit with No Credit History: A Comprehensive Guide

At O1ne Mortgage, we understand the importance of establishing a solid credit history. Whether you’re new to credit or looking to rebuild, this guide will provide you with actionable steps to help you get started. If you have any questions or need assistance with mortgage services, feel free to call us at 213-732-3074. We’re here to help!

Credit Cards for People With No Credit History

Opening a credit card is one of the quickest ways to build your credit, but your options may be limited if you don’t have an existing credit history. The good news is that there are other ways to show credit card issuers that you’re a responsible borrower.

Secured Credit Card

A secured credit card is similar to a regular credit card, but it requires a security deposit, which is usually the same amount as your credit limit. This deposit reduces the credit card issuer’s risk, making secured credit cards easier to qualify for than traditional, unsecured credit cards. If you default on your payments, the card issuer can use that money to cover their losses. However, your credit score will still take a major hit.

Using your secured credit card responsibly—paying your bill on time every month and keeping your revolving balance below 30% of your credit limit—can help you build your credit history and improve your credit score. If you eventually close the account or convert it to an unsecured credit card, your deposit will be refunded.

Store Card

Store credit cards are available through retailers and can be good for your credit if the store reports your payment activity to the credit bureaus. Store cards can offer perks like discounts, rewards, and free shipping. They may also provide special financing that allows you to carry an interest-free balance for a certain amount of time, which can be useful for big-ticket items. Store cards typically have lower credit limits and higher interest rates, but the eligibility requirements are generally looser compared to traditional credit cards.

Student Card

As the name implies, this type of credit card is geared toward college students. A student credit card can be a good way to begin establishing credit, and it works the same as regular credit cards. As long as you pay off your balance in full each billing cycle, you’ll avoid interest charges. However, student cards usually have lower credit limits. Eligibility criteria can vary from one credit card issuer to the next. You may have to meet income requirements or have at least some credit history to qualify.

How to Apply for a Credit Card

Every credit card issuer has its own eligibility requirements. For example, some may require a higher minimum credit score than others. Interest rates and credit card fees can also vary. Here are the general steps to apply for a credit card:

1. Check Your Credit Score

A higher score suggests that you’re a creditworthy borrower. If you have no credit history, you won’t have a credit score at all, which can make it tricky to qualify for a traditional credit card. Starting with a secured credit card, store card, or student card can help you get started. FICO® Scores are calculated using the following factors:

• Payment history: 35%
• Credit utilization: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%

2. Choose the Right Credit Card for Your Needs

Credit cards come in all shapes and sizes. Some offer points, miles, cash back, and other rewards. Others tout introductory 0% APR periods or intro bonuses. Credit cards for folks with bad credit are also out there. Think about what you’re looking for in a credit card and start there.

3. Compare Different Credit Cards

Once you’ve narrowed down your search, shop around and compare different credit card options. It can help you find a card that has the best terms and benefits for you. Zero in on the following:

• Annual percentage rates (APRs)
• Annual fees
• Balance transfer fees
• Foreign transaction fees
• Cash advance fees
• Minimum payments

4. Complete the Application

Getting prequalified can give you an idea of whether or not you’ll get approved. It involves a soft credit pull, which won’t affect your credit scores. If you decide to move forward, you can complete a formal application online through the creditor’s website. You’ll likely need to provide your income, monthly housing payment, and other basic personal information. An approval decision may be available in a matter of minutes.

How to Establish Credit With a Credit Card

Once you’re up and running with your credit card, the following steps can help you establish good credit:

Pay Your Bill on Time

Your payment history is the most important factor when determining your credit score. Setting up autopay can help prevent late payments.

Keep Your Balance Low

Aim to pay off your balance in full every month. This shows creditors that you know how to manage your credit. If you carry a high balance, especially one that exceeds 30% of your credit limit, it could drag down your score.

Use Your Credit Card

You’ll have to use your card to establish a credit history. One approach is to use it for regular expenses like groceries and bills, then pay off the balance in full when the bill comes due.

Request a Credit Limit Increase

If you’ve been paying your bill on time and keeping your balance low, your credit card issuer might automatically increase your credit limit. You can also request an increase after several months of on-time payments. The higher your credit limit, the lower your credit utilization ratio, which can help boost your credit score.

What to Do if You’re Denied for a Credit Card

1. Understand Why You Were Denied

If you’re denied a credit card, the lender is required to send you an adverse action letter explaining why. Reviewing it can help you understand where you can improve your credit. You’re also entitled to a free credit report from the credit bureau the lender used to evaluate your credit.

2. Appeal the Decision if Necessary

If you believe there’s been a mistake, you might ask the lender to reconsider their decision. For example, you believe the card issuer used incorrect income information when considering your application. They may reverse their decision and approve your application.

3. Take Steps to Improve Your Credit

Your application may be declined for legitimate reasons. In this case, taking steps to rectify those issues can help improve your chances of approval in the future. For example, if you were declined because you have a history of late payments or a high credit utilization ratio, you can be proactive about improving your credit.

Alternative Ways to Build Credit

Getting your first credit card is a common route to take when building credit, but if you’re having difficulty being approved, you might want to explore other options.

Become an Authorized User

This is when another person, such as a friend or family member, adds you as an authorized user on one of their credit cards. You’ll receive your own card and can make purchases, but the original account holder is legally responsible for making payments. Their history of on-time payments can improve your credit history if the account activity is added to your credit report.

Consider a Credit-Builder Loan

If you’re approved for a credit-builder loan, the lender will place the balance in a savings account. You’ll then make fixed monthly payments over a period of time until that balance is paid. When the term ends, you’ll receive the balance—plus interest in some cases. Paying your bill on time can improve your credit if those payments are reported to the credit bureaus. Just be sure you understand the interest rate, fees, and terms before moving forward.

Get Credit for Your Monthly Bills

Experian Boost® allows you to add on-time payments for bills such as eligible rent, utilities, and certain video streaming services to your Experian credit report, which could instantly raise your FICO® Score. This can be a good option for people who don’t have much of a credit history.

The Bottom Line

Getting a credit card with no credit history can be challenging—but not impossible. Secured credit cards, student cards, and store cards are good places to start. After establishing a history of on-time payments and responsible credit usage, you can eventually move onto a traditional credit card. In the meantime, O1ne Mortgage is here to assist you with any mortgage service needs. Call us at 213-732-3074 to get started on your journey to financial stability.