No credit history? No problem
By Ben Woolsey
It's the Catch-22 of credit: It takes good credit to get new credit. This is especially true in order to obtain low cost credit cards. But how does one get good credit when a credit history is required to even get a credit card? It's true that most major credit card companies try to limit their financial risk by mostly approving those with excellent or good credit. But there are credit card options for those who have not established previous credit history using a credit card.
Often, the lack of credit history is equated with bad credit. But, but if you fit this category, you should not despair or feel less worthy than others. It's all a matter of how you look financially to banks and major issuers of credit cards. After all, credit card issuers are for-profit organizations that must lend money and then get that money back plus interest in order to stay in business. Someone with no history of faithfully repaying money that has been borrowed is an unknown quantity and is, therefore, either avoided or assigned a higher degree of risk (and charged higher interest rate to offset that risk).
Students are often in this category due to their age and lack of income. However, major credit card issuers have figured out that most students enrolled in four-year colleges actually present an acceptable risk profile and generally warrant the risk of being issued credit cards. But if you are not a student, what are the options? As in most areas of commerce, there are also various types of credit card companies that specialize in different segments of the market. Several, such as First Premier Bank and Orchard Bank, offer cards to those without a credit history. Since the banks are taking on more risk and experience higher losses with this customer segment, applicants can expect to pay application, usage and annual fees for many of these products., since the banks are taking on more risk and experience higher losses with this customer segment. However, it can worth the costs involved to finally get that first credit card and begin establishing a solid credit history. And, once you have a strong track record, you can have your pick of cards that will pay you to use them.
Other options for those new to the world of credit can include retail store cards. Examples can include store cards offered by Sears, The Gap or even gasoline retailers like Exxon-Mobil. Retailers will often take a chance on new credit applicants where the major credit card issuers would not. And, once you build up a successful history of repayment you can use these store cards as a steppingstone to general use credit cards, such as a Visa, MasterCard, American Express or Discover Card.
So, again, don't despair if you are just starting out and don't have a credit history. It can be like trying to get your first job without any work experience on your resume. Concerning credit, as in the world of work, once you get your foot in the door and pay your dues, you can expect to advance to bigger and better things.
Published: January 17, 2006
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