No Credit Credit Cards
Like it or not, it’s hard for an adult to function easily in our society without access to some credit. Unless you can pay cash for absolutely everything (and who can?), you’re going to need the credit agencies to crank out reports every month that say you’ve been a good boy or girl when it comes to your use of debt tools.
This reality can be tough for young people trying to get the right start to building their credit. It’s the classic no job, no experience scenario right? You can’t get anyone to extend you credit unless you have some credit history, and you can’t build up your credit history unless someone will agree to give you some credit, any credit. No credit credit cards are probably the easiest door for a young person with no credit to walk through.
Credit card companies are some of the smartest, most patient, and most savvy marketers in the world. Yeah, people think they’re evil, but that’s a debate for a personal finance blog. Credit card providers have the good sense to form a relationship with a young person when they have no experience in the credit world, and kind of nurse them along as they develop themselves as earners and borrowers. My first credit card was given to me by Chase almost ten years ago with a limit of maybe $500. Now the limit on that card is over $8,000 and I have another Chase card with an equally big limit. And all because Chase was willing to give me a credit card with no credit at all.
How can they afford to do it? It’s pretty simple – they’re going to give you one of two kinds of credit cards. They’ll either offer you a secured credit card or a prepaid credit card. Different terms but they mean basically the same thing. In both cases you have to make a deposit equal to the amount of the credit line you’d like to be extended. If you can put in $300 that’s exactly how much credit you’ll have. You might be thinking “that makes no sense at all – why would I want a credit card if I have cash?” Because you need credit history, bucko. That’s why. After you form a relationship with the credit provider they’ll eventually be willing to give you unsecured credit cards, but you have to show them you’re not going to do anything stupid first.
Establishing your credit by using credit cards with no credit can be costly, though. Not only do you have to keep a deposit with the credit provider, they’re going to stick you with some fees to the tune of $50 to $100 per year. As you pay these fees just keep in mind that you’re opening the door to future important purchases – such as cars and homes – that will require you to have a solid credit rating.