If you haven’t started building credit yet, don’t worry. It’s never too early (or too late) to establish a responsible borrowing history. Your credit score indicates how likely you are to pay back any loan or financing you request in the future; the better your score, the easier it will be for you to get financing for that car, house, or other big purchase.
However, many people struggle with establishing their financial standing from scratch. If you have bad credit or none at all, the process of establishing yourself as a reliable borrower can be challenging. Fortunately, there are things you can do to improve your rating so that you can qualify for financial assistance. Here are some useful tips on ways to build credit history so that you can have a better future, as well as some of the best builder cards around.
Credit Cards for Building Credit: Best Offers
When you’re looking to build your rating, using a credit builder loan product can be a great way to do so. A prepaid or “debit” card might not help you enhance your borrowing power, but a credit card can. Getting the right kind of card is important, though. Some cards charge users fees or have other conditions that can still impact your ability to get financing in the future.
The best cards to build credit are those that offer a fair amount of money without being too difficult to qualify for. These cards will help you establish a positive repayment profile while also providing you with a small safety net in case of an emergency. Check out these excellent options if you are looking to establish or rebuild your financial profile and if you are just starting your recovery journey.
Petal® 2 “Cash Back, No Fees” Visa® Credit Card
The Petal 2 card is open to people with good or average ratings or no rating at all. However, if you already have a score, it will be factored into your application. This card doesn’t charge an application or annual fee and gives users cash back on every purchase.
What’s more, it provides users with an initial deposit of $300 that does not have to be repaid if the user meets certain conditions by spending no more than $200 per month on purchases in the first 90 days.
- Annual Fee: No annual fees
- Interest Rates: 15.24% – 29.24% variable APR
- Rewards: 1% cash back after activation, 1.5% on-time payments after 12 months, and 2%- 10% at select retailers
- Other Details: The three major reporting bureaus receive reports from Petal
Discover it® Secured Credit Card
While most secured cards have a lot of different fees and restrictions on how you can spend your secured loan limit, the Discover it Secured Card is pretty straightforward and user-friendly. This card type is a good option for individuals with limited or no financial records because it reports to the reporting bureaus and can improve their reports. Opening an account requires a refundable security deposit of at least $200.
In effect as of this article’s publication date, if you have limited or no borrowing history and cannot qualify for other unsecured cards, then the Discover it® Secured Card is your best bet.
- Annual Fee: No annual fee
- Interest Rates: 24.49% variable APR
- Rewards: 1% cash back on all purchases, 2% cash back at restaurants and gas stations, monthly access to FICO (Fair Isaac Corporation) scores
- Other Details: The three major reporting bureaus receive reports from Discover it, and your limit is equal to the security deposit
U.S. Bank Cash+® Visa® Secured Card
U.S. Bank Cash+® Visa® Secured card is a great way to build a borrowing history when you have little or no previous lending experience. It’s also a way to get an unsecured card faster with U.S. Bank if you don’t qualify immediately for the standard Cash+ Visa.
With a secured card, you deposit an amount equal to the card’s limit as collateral to secure it. U.S. Bank Cash+® Visa® Secured Card offers cash rewards and zero liability protection while helping you create a track record of good payments even with bad financial records.
- Annual Fee: No annual fee
- Interest Rates: 28.24% variable APR
- Rewards: 1% cash back on eligible purchases, 2% cash back at restaurants, grocery stores, and gas stations, 5% cash back when you book prepaid travel
- Other Details: The three major reporting bureaus receive reports from U.S. Bank Cash
Platinum Mastercard® Credit Card
Most banks offer the Platinum Mastercard® Card, which is one of the best cards for developing a good financial standing, as it requires no financial check to qualify. It has an excellent introductory APR offer with no annual fee and decent rewards rate.
In fact, this card even comes with a special incentive to help you build your score faster: If you have a fair or average rating (350-690), you’re eligible to get an initial boost by being pre-approved for a higher spending limit than most applicants.
Since this card is issued by a bank and not a department store, you won’t be able to rack up rewards points or similar perks. But you also won’t have to worry about getting locked into an unwanted deal with an annual membership or spending requirements. This card provides solid benefits without the fluff.
- Annual Fee: Varies depending on the retailer (typically, no fee-$36)
- Interest Rates: Varies depending on the retailer (typically between 16%- 27% APR)
- Rewards: Reward schemes vary from retailer to retailer (typically cash back, 0% interest for a certain period, Amazon rewards, and insurance coverage).
- Other Details: A financial check is required for this card, and those with poor or nonexistent scores may not qualify
QuicksilverOne Rewards Credit Card
With Capital One QuicksilverOne Rewards Card, consumers with less-than-perfect or “fair” credit can earn rewards on various purchases. However, the card does not offer the same benefits as other rewards cards.
Your score will be boosted as a result of the main perks. Besides getting approved with fair ratings, banks will automatically review your account and consider you for a higher loan amount when they think you qualify – usually after several months of repayments. The result is that the Q1 Rewards Card isn’t going to wow anyone with its perks—but it doesn’t need to if your only concern is building financial security.
- Annual Fee: $39
- Interest Rates: 26.99% variable APR
- Rewards: Earn unlimited 1.5% back for each dollar you spend
- Other Details: A high APR, plus an annual fee, no foreign transaction fees
Quicksilver Secured Rewards Credit Card
Quicksilver is an unusual card company. They’re not interested in offering their customers rewards or balance transfer deals. Instead, they target people with little or no borrowing history and offer them a secured card instead.
This means that applicants must put down a security deposit of at least $200 before qualifying for the card. The money is refundable and acts as your initial advance. In return, these secured cards come with much lower limits than unsecured options.
- Annual Fee: No annual fee
- Interest Rates: 26.99% variable APR
- Rewards: Earn 1.5% cash back on every purchase
- Other Details: You won’t be responsible for unauthorized charges with this card, which includes a free credit score monitoring tool.
7 Ways of Building the Credit
With the right strategy and persistence, you can create a good financial report as early as possible. The good news is that improving your report is something that you can actively work on and improve over time. If you have bad credit, there are various methods to begin to repair it so that you can take advantage of the benefits of having a strong report. Here are some tips on how to build your score so that you can get financing when you need it most.
Get a Secured Card
A secured credit card is a type of card that requires you to put down a security deposit. These cards are commonly available as a way for people with poor or nonexistent borrowing histories to improve their ratings. With a secured credit card, you typically need to make an upfront deposit between $50 and $300, which the issuer will hold until you finish paying off your balance.
In return for your deposit, the issuer will give you a lending limit equal to that amount. The benefits of having a secured card include an improved rating, which can help if you apply for another type of financing in the future. Furthermore, many issuers offer perks such as cashback rewards or other incentives in addition to building your record of paying back your debt.
Get a Credit-Builder Product or a Secured Loan
It will be easier to save money while rebuilding or establishing your financial standing with a financial builder product like a card or secured loan. You can access the amount by making fixed payments to a lender at the end of the contract term. Furthermore, credit-builder financing may require fewer financial checks and may offer lower interest rates than secured financing options.
They are typically unsecured, meaning they don’t require any collateral (such as a house or car) to be granted. And help to enhance your financial position when payments are made on time and then updated with the financial reporting agencies.
Secured loans for bad credit are designed specifically with people who may not qualify for unsecured loans in mind. With this form of financing, the lender will give you money if you put up something of value—typically equity in another asset like your home or car—as collateral.
Maintaining your repayments on time can help you establish your report. If you cannot repay what you borrow, your financial rating may suffer, and your collateral may be at risk.
Use a Co-Signer
If you’re just starting to improve your relationship with borrowing or are trying to qualify for more serious opportunities like a mortgage, getting a co-signer can help. A co-signer is someone who agrees to take responsibility for your debt if you aren’t able to. This way, you’ll be able to get approved for the money without having a substantial impact on your own financial rating.
A co-signer can help you improve or raise your score. Your record of payments makes up 35 percent of your report, so you can boost your score by keeping up with your payments.
Become an Authorized User
Three months after becoming an authorized user on someone’s account, people with fair credit saw their score improve by nearly 11%. Becoming an authorized user of another person’s account is one of the easiest strategies to establish good financial standing without borrowing money.
It works when your chosen account owner demonstrates good financial habits supporting credit score growth, such as making regular payments, eliminating debt, and keeping utilization low. Look for someone who doesn’t have recent negative marks on their report, has a long history of on-time payments, and is trustworthy.
Get Credit For the Bills You Pay
In the world of borrowing, the smallest details can have a big impact. Improving your score often requires a lot of little details and habits that might not be obvious at first glance. If you have bad credit, paying bills on time is one way to rebuild it. In fact, maintaining an active account with any lender and demonstrating that you can responsibly manage your money can actually help increase your score over time. It signals to potential lenders that you are responsible and attentive to your personal financial situation.
That being said, there isn’t any definitive assurance between paying your bills on time and a higher score. But it doesn’t hurt to maintain payments in order to establish a healthy financial strategy that may be enough to obtain money that firmly establishes your financial standing, especially if that activity is disclosed to reporting bureaus.
Practice Good Credit Habits
Good repaying habits are behaviors that help you develop and maintain a positive borrowing history over time. The better your habits, the higher your score, and the more lenders will trust you with their money in the future. Having good financial standing is not hard, but it takes conscious effort to stick to the following:
- Avoid maxing out credit accounts: Maxing out one or more cards or accounts from any lender is an obvious way to hurt your score. The more accounts you open and the more debt you take on, the lower your score can go.
- Manage your debt-to-income ratio: A debt-to-income ratio measures your ability to manage your monthly expenses. A lender will look at this ratio when you apply for financing. If you have a high debt-to-income ratio, it means you spend more of your income on monthly expenses than on potential repayments.
- Contribute to an emergency fund: Financial stress can hinder your ability to make sound decisions and leave you feeling trapped and helpless. But by proactively addressing the financial challenges in your life, you can take control of your finances again. The first step on that journey is creating a game plan for getting back on track with your finances.
- Practice making payments before taking on new debt: Remember that taking on debt comes with a cost – interest payments, which can quickly eat into your cash flow and hinder future growth. Financial experts recommend finding alternative sources of financing before taking on new debt. In other words, practice making payments first and then take on new debts later only if it makes sense.
- Monitor your credit reports: When you monitor your file regularly, it will be easier to identify any developing challenges and take action if you fall into trouble. A rising report is also an excellent source of motivation.
- Know your credit score: You can better understand your current financial situation by checking your financial record. Doing so will also give you an insight into what lenders see and help you determine if any information is missing or inaccurate.
- Think before closing accounts: As the combined age of every account calculates your score, getting rid of the oldest one may have a negative impact. In general, the longer you’ve had an account, the better your score will be.
Check Your Credit Scores and Reports
If you want to manage your money effectively, you should conduct a regular financial check. To ensure your score is reasonable and to correct errors in your personal record, you should check it regularly. Having errors in a personal statement can have a major impact on your financial future.
Make sure you check your report as often as possible- or at least once a year. AnnualCreditReport.com provides free copies of your report from Equifax, Experian, and TransUnion, three major financial reporting agencies.
What Is Considered Bad Credit?
Different lenders will have slightly different rules regarding what qualifies as bad credit, but there are a few universal signs that indicate your financial situation isn’t ideal. The main indicator is the inability to obtain financial assistance. Many different types of ratings exist, and each one measures something slightly different.
A person with good credit has a high score that may induce lenders to offer the individual more favorable terms when securing a new borrowing arrangement. A person with bad financial standing may be rejected by most lenders and have trouble securing future financing.