What is a starter credit card?
A starter credit card is one that's available to people with limited or no credit history. This type of credit card is designed for those who are building credit for the first time.
There are a couple of common starter credit card types:
- Secured credit cards: A secured card requires a security deposit to open. The deposit is usually equal to the starting credit limit. Since the card issuer has a deposit, it can be more lenient about approving applicants with no credit history.
- Student credit cards: A student credit card is aimed at college students. Card issuers tend to be flexible about approvals for student cards, since young adults typically don't have much in their credit files.
Another way to get a starter credit card is with a card issuer that lets you link your bank account during the application process. Petal is one example of a credit card company with this option. Even if you have no credit, you can link your bank account when you apply for the card. The card issuer uses your payment history from your bank to evaluate your creditworthiness.
RELATED: How Do Credit Cards Work: A Beginner's Guide
Who needs a starter credit card?
You'll need a starter credit card if you don't have much or any information in your credit file. Since you don't have much borrowing history, card issuers likely won't approve you for anything except starter credit cards.
Here are some common examples of situations calling for a starter credit card:
- You're a young adult
- You haven't had a credit card or loan before
- You've avoided credit, and primarily paid for expenses with cash or a debit card
- You've immigrated to the United States
- You used to have credit accounts, but you haven't used them in years
If you wonder why it's important to get a starter credit card, there are a couple of good reasons. A credit card is a secure payment method, because it's not tied to your bank account and you can get a replacement card if yours is lost or stolen. When you use a credit card and follow good habits, such as paying on time, it can raise your credit score. This can help you qualify for better loan rates and credit cards with more benefits, including cash rewards or travel rewards.
Ready to get a card? See Motley Fool Money's list of the best credit cards for young adults.
What do I need to open a starter credit card?
There are only a few requirements to open starter credit cards:
- You must be at least 18 years old
- You need a physical U.S. address (it can't be a P.O. Box)
- You need a Social Security number (SSN) or individual taxpayer identification number (ITIN)
- You need consistent income
Your income is what the card issuer looks at to confirm you can pay your credit card bill. It's also one of the main factors the card issuer uses to set an appropriate credit limit for you.
Keep in mind that your reported income can include more than just what you make from a job. If you're at least 21 years old, you can report any income you reasonably expect to access. Potential examples you could use when applying for credit cards to build credit include:
- A partner's income, if you've combined finances
- Distributions from a trust fund
- An allowance
- Scholarships and grants
If you're under 21, you can use income from work, allowances, scholarships, and grants.
To open a secured credit card, you need enough money to pay the security deposit. Most secured credit cards to build credit require a deposit of at least $200. However, there are some with smaller deposit requirements.
How can I get a credit card with no credit?
If it's your first time getting a credit card, here's how to open one with no credit.
- Check out starter credit cards to build credit. Look for those that fit your situation. If you're in college, student credit cards are a popular choice. If you can afford a deposit, secured credit cards are worth a look.
- Decide which of these credit cards to build credit you like most, and click the "Apply Now" option.
- Fill out the application form.
- Submit the application and wait for a response.
When you submit a credit card application, you may get an answer immediately. Sometimes, the card issuer needs more time to review your application. In that case, you'll get a response in the mail. You can also call the card issuer after a few days.
If your application is approved, you receive your new credit card in the mail within seven to 10 business days. If your application is denied, the card issuer will mail you a letter explaining why. You can call to ask that the decision get a second look. Card issuers sometimes reconsider denials.
Your other option is to shop around for other starter credit cards for no credit history. You may want to look at the easiest credit card to get if you're having trouble getting approved.
How can a credit card help me build credit fast?
A credit card can help you build credit fast if you follow a few credit habits:
- Pay by the due date so you have a perfect payment history.
- Stay below 20% to 30% of your credit limit for a low credit utilization ratio.
- Keep your credit card open to add to your length of credit history.
That's all it takes to get a good credit score. If you stick to those habits, your credit score should increase quickly.
To understand why these habits work, let's look at the factors that have the biggest impact on your credit score.
Payment history
Your credit score is basically a rating of how likely you are to repay debt. So it makes sense that nothing affects your credit score more than your payment history. If your credit report includes years of on-time payments, odds are that you'll have a very high credit score. Any late payments, on the other hand, can drop your score quite a bit, even into the bad credit range.
With a starter card, it's easy to build a good payment history. Pay on or before the due date and the card issuer reports that you paid on time to the credit bureaus. As your record of on-time payments grows, your credit score gets better and better.
Credit utilization ratio
Another big part of your credit score is your credit utilization ratio, or how much of your credit you use. You could also look at it as how close you are to maxing out your credit cards. The farther away from that you are, the better it is for your credit.
To calculate your credit utilization, divide your credit card balances (what you owe) by your credit limits (the maximum amount you can charge on your credit cards). For example, if you have one starter credit card with a limit of $1,000 and a $100 balance, then your current credit utilization is 10%.
Your credit utilization has a positive impact on your credit when you keep balances low. Very high balances, on the other hand, can lead to bad credit. A good rule of thumb is not going above 20% to 30% credit utilization. On a card with a $1,000 credit limit, that would mean not exceeding a balance of $200 to $300.
Length of credit history
Age is only a number, but the age of your credit accounts is a key factor in your credit score. Specifically, credit-scoring formulas look at how long you've used credit and the average age of your credit accounts.
The only thing you need to do here is to get a credit card and keep it open for the long haul. Once you have your first credit card, that starts the clock on your credit history. By keeping it open, you continue building a longer account age.
LEARN MORE: The Complete Guide to Understanding Your Credit Score
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