Best Credit Cards for People With No Credit
If you’ve never had a credit card, you may be thinking, “This is great. When I do want a credit card or loan, companies will give me a great rate because I’ve proved I’ve never bought anything I can’t pay for in cash.”
Unfortunately, that’s not true.
“In order to have a top credit score, you need to prove you are a good credit risk — that means you have to actually use credit, and use it responsibly,” says Michele Steinberg, a Financial Consultant with LPL Financial, a registered investment advisor and fee-based financial planning organization.
To be clear — we’re not advising you to apply for all of these cards.
“Running up a bunch of credit card debt won’t improve your score,” Steinberg says. “But creditors, the people who will loan you money, want to see that you can take on debt and pay it off. If you have zero debt, you do not look trustworthy.”
Don’t Have Any Credit History? You’re Not Alone.
A study by the Consumer Financial Protection Bureau found that one in 10 Americans don’t have a credit score because they’ve never carried any debt. All together, 11% of Americans are “credit invisible,” a term that means a person doesn’t have a credit history or score with any of the three major credit bureaus used in the United States
Another 19 million Americans have a credit history, but don’t officially have a credit score because those lines of credit or loans are from too long ago — or were started too recently — for creditors to judge the person’s repayment skills.
Having a good credit score is important. Credit scores tell companies what debt a person owes to other companies, if they have anything in collections and how well they repay loans.
Having no credit score can make it hard, if not impossible, to:
- Find credit cards with perks like points or cash back
- Get low-interest-rate credit cards.
- Obtain loans with good interest rates for cars, houses, schools, and more.
- Rent an apartment without putting down a larger-than-normal security deposit or pre-paying months in advance.
- Get certain jobs, especially those that require overseeing money.
There are many reasons why people don’t have a credit history, and therefore, a decent credit score, including:
- Falsely believing that not having any debt will demonstrate financial prudence to future lenders.
- Moving from a country that doesn’t rely on credit scores tabulated by Experian, Equifax, and TransUnion.
- Simply being too young to have a long credit history — your repayment record is a big factor in determining your credit score.
Without a good credit score, which Experian says is above 669, you’re often forced to take high-interest credit cards and loans that sometimes charge annual and/or monthly fees.
If you don’t have a credit score or history, don’t worry. Some credit cards treat credit newbies decently. “The best way to use credit cards to build up your credit score is to set up one or two recurring charges and pay those in full every month,” Steinberg says.
Here are some of our favorite cards if you’re just starting (or starting anew):