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Those with No Credit

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If you have no credit, you’re slightly better off than someone with bad credit, but only slightly. Banks aren’t likely to want to assume the risk of lending to you, so you’re generally limited to secured credit cards. You should focus on building up enough of a payment history to move on to unsecured credit cards.

Secured credit cards: A secured credit card allows you to borrow money you don’t have, but you need to post collateral upfront, usually equal to your credit limit. You may also need to pay annual fees. However, your interest rate should be lower: below 10% isn’t unheard of. On-time payments are reported to credit rating agencies, so using the card responsibly will establish a good credit score.

Young adult credit cards: A number of small community banks and credit unions, as well as a few bigger banks, offer a young adult card to help youth, though not necessarily students, build up their credit scores. If you’re under 21, you’ll need a co-signer automatically. If you’re over 21, you’ll need a co-signer unless you have a source of income. You can piggyback on your co-signer’s good credit score to build up your own.

Immigrants: Capital One has a special card for immigrants: the Capital One for Newcomers. It’s meant for people who had a good credit history in their previous country but started with a blank slate in America. The card earns 1% rewards and waives its foreign transaction fee, a nice perk when traveling abroad.

How to build up your credit score: The best way to establish a good credit score is build a solid payment history with a credit card, generally a secured card. In moving your score up from no credit to good or even excellent credit, the most important thing to do is to pay off your bills each month. Incurring a little bit of debt every once in a while will move you from excellent to really excellent credit, but don’t worry about that for now. Please see our tips on how to raise your credit score.

While there are only a few ways to build up your credit score, there are any number of ways to ding it. Missed payments, bankruptcy and excessive debt are the most obvious, but you can also be marked down for missed rent or utilities payments. Unfortunately, on-time bills don’t raise your score, and can only lower it.

Debit cards, even prepaid debit cards, do not affect your credit score at all. If you get a prepaid debit card, you’ll end up paying a lot of fees you don’t need to, without helping yourself move upward.