No credit history? No problem.


It's the Catch 22 of credit: It takes good credit to get new credit. This is especially true for 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 a credit history.

The risk equation
Often, the lack of credit history is equated with bad credit, but if you fit this category, do not despair. It's all a matter of how you look financially to banks and major card issuers. After all, credit card issuers are profit-making organisations that must lend money and then get that money back, plus interest, 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 a higher interest rate to offset that risk.

First-time credit cards
Students are often in this category due to their age and lack of income. However, major credit card issuers have figured out that most university students actually present an acceptable risk profile. They are upwardly mobile, have many years of bill-paying ahead of them and may be able to tap parental resources if they get in trouble. To the issuers, they generally warrant being issued credit cards. But if you are not a student, what are the options? As in most areas of commerce, there are various types of credit card companies that specialize in different segments of the market. Some 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. However, it can be worth the costs involved to begin establishing a solid credit history. Once you have a strong track record you can have your pick of cards.

More choices
Other options for those new to the world of credit can include store cards from common high street shops. Retailers will often take a chance on new credit applicants where the major credit card issuers would not. Again, a successful history of repayment opens the door to standard credit cards, such as those bearing the Visa, MasterCard or American Express logos. So 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. But just 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. For more information on credit cards and related topics, please see our credit card news archive.

Published: 8 July 2007