Not having credit is hard. Whether you're looking to buy a car, a house or just get a credit card, banks rely on a credit score to make sure that you are a trust worthy borrower. If you've just escaped a bunker (or something more realistic like just graduated from college) and haven't established a credit history just yet, don't worry. There are credit cards out there for you.
If you don't have a credit score, it's important to know what makes up a credit score so you can start things off right and build a credit score that will work for you long term. 75% of your credit score will be made up of factors that you can start impacting today.
- 35% of your score is payment history. Once you get a card, make sure you make your payments on time each month.
- 30% of your score is the amount you owe relative to the amount of credit you have. You never want to use more than 30% of your available credit. Ideally, you want to stay below 10% usage. This rule applies to what gets reported after you pay your credit card bill. For example, if you have a credit line of $200 you'll want to keep your reported balances under $20. If you charge $100 during the month you'll want to pay at least $81 on your monthly bill to make sure your utilization that is reported to the credit bureaus is less than 10%.
- 10% of your score is the different types of credit available to you. A credit card is revolving credit. A loan is an installment account. The third popular account type is a mortgage. If you're new to credit, we'd highly recommend adding both a revolving and installment account to optimize your credit mix quickly.
The last 25% of your score is a bit harder to influence.
- 10% of your score is made up of new credit. If it looks like you're trying to take out a lot of new debt, you appear to be risky on paper, so your score will drop. Obviously you need to apply for your first card, so this is unavoidable.
- 15% is length of credit history. You're new to credit so your length will be short. You'll build this up over time, so don't worry about this too much. Everyone has to start somewhere!
Knowing what makes up your credit score will help you make smart choices as you apply for financial products. With the right tools, you'll be able to take that score of 0 to a 700 in a few months. With on time payments and smart planning, you'll keep growing until you hit 850! Here's what we recommend to get your credit journey started.
A secured card requires you to put money down to secure your line of credit. You can deposit as little as $200, and go all the way to $3,000. We like OpenSky because they don't do a credit check to get you approved, so you won't have a new hard credit pull on your credit report after you apply. The card has a $35 annual fee, which is relatively low, and an 18.64% variable APR which isn't terrible. Just remember you're going to pay your balance off in full each month, so APR shouldn't be too important to you. OpenSky is very upfront about their fees. You can see a full list here.
2) Indigo Credit Card
We like Indigo for a couple of reasons. First, this is a real credit card, so there is no security deposit required. That's a win. Indigo will also pre-qualify you for their credit card if you fill out a short form. The pre-qualification process uses a soft credit inquiry, so you should have a pretty good idea of whether or not you'll be approved for the card before you apply. If you are pre-qualified and apply, Indigo will use a hard credit inquiry to approve your actual application. Your annual fee will range from $0 - $99 depending on your pre-qualification terms. If you get an annual fee higher than $0, we'd recommend going with OpenSky instead. The APR for the card is 23.9%, which is a bit high, but again, pay your balance in full each month. You can see the complete pricing terms here.
3) Card Match
Card Match is a tool from CreditCards.com that will use a soft credit pull to match you to offers from over 5 banks. It's worth checking in the tool to see if you have any matched offers from Capital One, Bank of America, Chase, Genesis Bank, or American Express. You'll need to provide Card Match with your name, address, and last 4 digits of your social security number for matching, but this won't impact your credit score.
4) Self Lender
Remember when we said that credit mix makes up 10% of your score? Self Lender can help you add an installment account to your credit mix, since credit cards report as revolving accounts. Self Lender is a great addition to a credit report for anyone looking to build or establish new credit. How does it work? You pick a savings goal with Self Lender and apply for a loan for the amount you want to save. Self Lender opens a CD with your loan money. You will make monthly payments each month towards unlocking your CD. Those payments get reported to the credit bureaus. Once your savings goal is met, you'll get a check for your savings. Boom. You just saved some money, and built credit at the same time. As a bonus, Self Lender will give you access to credit monitoring with a monthly credit score for free.
Building credit can be a fun journey. It's so important to start off in a good spot. Your credit score will impact your interest rates for auto loans and mortgages for years to come. Having a good credit score will unlock the best rates for you and can help save thousands. Over $83,000 to be exact, according to Forbes. :)