If you have not yet begun to build a good credit history, you should take steps to do so. Establishing credit is essential for obtaining credit, qualifying for loans, and even connecting utilities at your home. Many people who are financially responsible have not yet begun to build a credit rating with the three major credit bureaus. One way to start building credit is to obtain a credit card designed for consumers who have no credit or less than perfect credit.
Types of Credit Cards to Build Credit
The credit industry has created a few different credit card products that are marketed to those with no credit or poor credit. These credit card products include:
Secured Credit Cards
Secured credit cards are special accounts where the credit card holder funds a security deposit in order to have the credit card. Their credit limit may amount to more or less than the security deposit, depending on the consumer’s financial history. A secured credit card allows the consumer to establish a desirable payment history. If the positive payment history is maintained over time, the consumer is able to apply for a standard credit card.
Student Credit Cards
All of the major credit card companies offer students a tailor-made student credit card to meet their unique needs. Student credit cards generally start with a low credit limit and allow the student to build their credit over time with regular, on-time payments.
Student credit cards often provide desirable terms for young people. For example, some accounts will allow the student to be late on one payment without a rise in their interest rate. Student credit cards are probably the best option for building credit and keeping debt in check. However, the consumer must be a student in order to qualify.
High Interest / High Fee Credit Cards
Those with no credit or less than perfect credit will sometimes qualify for high interest or high fee cards. These credit cards may charge an annual fee as much as $100 per year. Some of these credit cards have interest rates near 30 percent. Be very careful when opening a high interest / high fee account. If you open a high interest/high fee account, be diligent about making the payments on time.
Best Credit Cards for Building Credit
A few of the best credit cards to use for building your credit history include:
– Discover it
– Chase Freedom Visa
– Wells Fargo Secured Visa
– Citi Diamond Preferred Card
– American Express Blue Cash Card
– CapitalOne Secured MasterCard
These are just a few of the “starter” credit cards that are available to consumers. Compare interest rates, annual fees and perks before making your final selection.
It’s Not What You Got, It’s How You Use It
Obtaining any credit card can help you build your credit. The type or brand of credit card is not as important as the way that you use the card once you get it. Avoid maxing out the account. This is one of the most common mistakes made by those attempting to use credit cards to build their credit rating. When you max out your credit cards, you actually lower your FICO score. In your efforts to build your credit, overusing your credit cards will have the opposite effect.
Once you obtain a credit card to build your credit, try to pay off the balance each month. Make sure to always pay the bill on time. Payment history is approximately 35 percent of the FICO score.
Obtaining a “starter” credit card is a great way to start building your credit history. However, remember that credit card debt can quickly get out of hand. Apply for and manage just one card. Once you have a proven history of successfully managing your credit accounts, you will qualify for standard and even preferred credit cards.