When you’re trying to build your credit history, you can find yourself stuck in a paradox. You can’t build your credit until you’re given a loan, but no one wants to give you a loan without a credit history.
As a result, some give up in frustration and resign themselves to “having no credit.” But there are ways to build credit from scratch, otherwise no one could have done it.
There are credit cards that are designed for people with limited or no credit history. These cards may not offer you incredible rewards, or super-low interest rates, but you can get approved for these cards easily in order to build your credit.
One way to build credit is with a secured credit card, which is available to people with no credit history. Secured cards are similar to other credit cards, but you must pay a refundable security deposit before your account can be opened. Also, the credit line you receive will be equal to the amount of your deposit.
After your account is opened, you’ll receive a statement each month and you must make monthly payments. Your security deposit will only be used if you’re in default. You’ll also have to pay interest charges if you decide to carry a balance.
Within a year, most secured card users who have made all of their payments on-time payments are able to switch to an unsecured card and have their security deposit refunded. Here are two of the best secured cards:
Discover it® Secured
The Discover it® Secured offers most applicants with no credit or bad credit the chance to build credit if they pay at least a $200 security deposit. But once opened, it has all of the other features and benefits of the Discover it® Cash Back.
For example, it has no annual fee, no foreign transaction fee, and no penalty interest rate. Discover will also waive your first late payment charge automatically, and it offers 100 percent US based customer service.
You’ll even earn two percent cash back rewards at restaurants and gas stations on up to $1,000 in combined purchases each quarter, and one percent cash back on all other purchases.
What We Like:
Put down a refundable security deposit starting at $49 to get a $200 initial credit line.
Be automatically considered for a higher credit line in as little as six months with no additional deposit needed.
No annual fee and no foreign transaction fees.
By submitting a refundable deposit of $49, $99, or $200, you can open an account with an initial credit line of up to $200.
Furthermore, you can be automatically considered for a higher credit line with no additional deposit in as little as six months. Benefits include extended warranty coverage, auto rental insurance, and a price protection policy. There’s no annual fee for this card, and no foreign transaction fees.
What We Like:
No credit check needed to get approved for this card.
Choose your own security deposit between $200 – $3,000 and that becomes your credit line.
On-time payments will be reported to all three credit bureaus, so you can start building credit responsibly.
The annual fee is just $35, and OpenSky® does not charge any application, servicing, or processing fees.
- No credit check to apply and find out instantly if you are approved.
- OpenSky gives everyone an opportunity to improve their credit with an 85% average approval rate for the past 5 years
- You could be eligible for the OpenSky Gold Unsecured Card after as few as 6 months
- Reports to all 3 major credit bureaus monthly, unlike a prepaid or debit card
- View your FICO® Score through your OpenSky account, an easy way to stay on top of your credit
- Nearly half of OpenSky cardholders who make on-time payments improve their FICO score 30+ points in the first 3 months
- Your refundable* deposit, as low as $200, becomes your OpenSky Visa credit limit
- Easy application, apply in less than 5 minutes right from your mobile device
- Offer flexible payment due dates which allow you to choose any available due date that fits your payment schedule
- *View the cardholder agreement
The OpenSky® Secured Visa® Credit Card is a secured credit card that reports credit activity to all three major credit bureaus: Experian, TransUnion, and Equifax. Make consistent, timely payments, and watch your credit report improve in as little as just a few months.
More importantly, you don’t need to have an existing credit score to apply, because the OpenSky® Secured Visa® Credit Card doesn’t pull your credit report. You’ll also get an instant decision on your application.
There is an annual fee of $35 to use the OpenSky® Secured Visa® Credit Card, and the interest rate is 21.64% (variable).
Store charge cards
Another way to build credit from scratch is to use a store charge card.
These are credit cards that are only valid for use for purchases from a single store. So while they are not part of a payment network like Visa or Mastercard, these accounts will still appear on your credit report to help you build a credit history. Here are three of the best store charge cards:
Other benefits include free shipping on most items at Target.com (a minimum purchase may be required), and an additional 30 days to for returns. There’s no annual fee for this card.
Amazon Prime store card
The giant online retailer offers this store card to subscribers to its Prime service. It offers five percent back (as a statement credit) on all of your Amazon.com purchases.
It also features a variety of special financing options on purchases of $149 or more. There’s no annual fee for this card.
Lowe’s Advantage Card
This home improvement store also offers a store credit card that gives you five percent off of all purchases, or special financing options. There’s no annual fee for this card, and you can even make your payments in the store.
Self (Alternative to Credit Cards)
Secured cards and store credit cards are effective ways to build credit but they have two significant pitfalls.
- They’re expensive. If you carry a balance month to month, you’re losing money with moderate to high interest rates.
- They’re dangerous. Store credit cards specifically, sometimes the temptation to buy more than you can afford will get you into much more trouble than you’ve bargained for.
Self is a different way to improve your credit score. They offer four different loans with one or two year repayment plans that allow you to simply pay yourself, all for a small fee. The idea behind Self is that instead of risking more credit and falling deeper into debt (or hurting your credit score), you can take a loan out with no chance of amassing debt and increase your credit score in the process.
Every month you make a payment on-time, Self will report it to the three major credit bureaus. After you’ve made your last payment, Self will send you a check for the sum of all payments made, minus interest and a one time $9 or $15 application fee. Payment terms are 12 or 24 months and loan amounts are either $525, $545, $1,000 or $1,700.
Building credit may seem possible, but there are plenty of credit cards that can help (if used responsibly). Any of these cards will help you start slowly building your credit.
Self Financial compensates us when you sign up for Self Financial using the links provided.
All Credit Builder Accounts made by Lead Bank, Member FDIC, Equal Housing Lender, Sunrise Banks, N.A. Member FDIC, Equal Housing Lender or Atlantic Capital Bank, N.A. Member FDIC, Equal Housing Lender. Subject to ID Verification. Individual borrowers must be a U.S. Citizen or permanent resident and at least 18 years old. Valid bank account and Social Security Number are required. All loans are subject to ID verification and consumer report review and approval. Results are not guaranteed. Improvement in your credit score is dependent on your specific situation and financial behavior. Failure to make monthly minimum payments by the payment due date each month may result in delinquent payment reporting to credit bureaus which may negatively impact your credit score. This product will not remove negative credit history from your credit report. All loans subject to approval. All Certificates of Deposit (CD) are deposited in Lead Banks, Member FDIC, Sunrise Banks, N.A., Member FDIC or Atlantic Capital Bank, N.A., Member FDIC.