Credit Cards: Are There No Credit Credit Cards?

There is really no such thing as a no credit credit card, but consumers with no credit history do have some options.

A credit card, or its equivalent, is a necessary tool these days. You need one for identification to cash a check, to rent a car or a hotel room, and even to make internet purchases. Credit cards are also nice to have if you want to avoid carrying cash or if an emergency arises.

But, what's a person to do if they don't have any credit? While bad credit and no credit is not the same thing, those with no credit are often treated like those with bad credit. Because a credit card company has no way of knowing whether or not you are a good credit risk, they will charge you the same, or nearly the same, exorbitant interest rates they charge those that have proven themselves to be bad risks.

There is really no such thing as a "no credit" credit card, but there are some options for folks who need to build up their credit.

SECURED CREDIT

Many people open secured credit accounts. To do so you must deposit a certain amount of money, perhaps five hundred dollars in an account with the credit card company; this is then designated strictly to paying for your charges. You cannot access this money for any other purpose. You may use your card for purchases less than the amount deposited.

This may sound pretty good, until you find out that the card company actually charges you an annual fee and interest to "borrow" your own money. Many consumers have found their entire deposit eaten up in fees before they ever charged a thing. If you are going to pay for this "privilege" you should first do some research and find the best possible deal. Be sure to read and understand all the fine print.

-Find out if the company you are interested in will take into consideration the fact that you have been working at the same job for several years, or you have maintained the same residence for quite some time. While these things don't guarantee that you'll be a good credit risk, they do show stability which is also important to lenders. The more good things you have in your favor, the lower your interest rate should be.



-See if the card requires an application fee. If so, look for one that doesn't. Ask how much the annual fee is and what interest rate you will be charged. Secured cards nearly always charge higher fees and interest rates than regular cards do, even though you are borrowing your own money.

-Ask if the company will reward you for a good payment history by extending your line of credit beyond your original deposit. Find out how many months in a row you must pay on time before such a line of credit is awarded.

-Inquire as to whether or not the company reports to credit bureaus and which ones. You can't build credit if your payment history is not documented and shared with potential new lenders.

CO-SIGNERS

If you need to build credit and you don't want to pay to borrow your own money via a secured account, you might be able to obtain a non-secured credit card if you can get someone else to co-sign for you.

If you choose this option, you must understand that your co-signer's credit history will be a determining factor. This is a good thing if that person's credit is good. But, you must also take into consideration the fact that if you are unable to meet your end of the bargain for any reason, it is not only your credit rating that will suffer. If you damage your co-signer's credit, you may lose a friend or a close relationship besides your credit rating.

DEBIT CARDS

There is also the option of obtaining a debit card. Many banks provide such cards if you have been banking there for a while and have a good record of properly using -and not overdrawing- your checking account.

Debit cards are linked directly to your checking account, so you cannot spend money that you do not have. While this is not the same as having credit, these cards can be used in much the same way as a credit card and are often issued by top names like Master Card and Visa.

Aside from keeping you within your limits, the added benefits of a debit card are that they are well accepted, they can be used at ATM's and they don't charge you interest. Many don't even charge an annual fee.

One drawback is that most don't report to credit bureaus, but if you're looking for the convenience of a credit card, rather than a way to build a credit history, this may be the most viable option for you.

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