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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.
Credit Cards for People With No Credit History
You may qualify for a secured credit card, store card or student credit card—even if your credit file is thin. These can help strengthen your credit history and make it easier to get approved for a traditional credit card.
Secured Credit Card
A secured credit card is similar to a regular credit card. The main difference is that it requires a security deposit, which is usually the same amount as your credit limit. The deposit reduces the credit card issuer's risk, which means secured credit cards are typically 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. (Your credit score will still take a major hit, however.)
Meanwhile, you can build your credit history and improve your credit score when you use your card responsibly. That means paying your card on time every month and keeping your revolving balance below 30% of your credit limit if possible. If you eventually close the account or convert it to an unsecured credit card, your deposit will be refunded.
Store credit cards are available through retailers. They can be good for your credit if the store reports your payment activity to the credit bureaus—assuming you pay on time and keep your revolving balance on the lower side. Store cards can offer other perks, too, 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 come in handy if you're purchasing a big-ticket item. Store cards typically have lower credit limits and higher interest rates, but the eligibility requirements are generally looser when compared with traditional credit cards.
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. Having said that, 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. That 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☉ , used by 90% of top lenders, 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. As previously mentioned, secured credit cards, student cards and store cards can be good for those who don't have a strong credit history. 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 far and away 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. This is the amount of available credit you're using. That 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. Experian provides free credit reports as well.
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. Let's say you were declined because you have a history of late payments or a high credit utilization ratio. Once you know these things, you can be proactive about improving your credit.
Alternative Ways to Build Credit
We've all got to start somewhere when building credit, and getting your first credit card is a common route to take. But if you're having difficulty being approved for a credit card, 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. You might choose to do this with a parent and then pay them directly for whatever purchases you make with the card. 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®ø gives you credit for bills you have to pay anyway. It 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, Experian provides free access to your credit score and credit report so you can keep track of your progress.