What comes first – credit or credit history? With a credit builder credit card, the answer is very clear: credit!
Who benefits from a credit builder credit card?
For individuals who have no credit history, this may be an excellent first step to start building a positive credit report and score that may help obtain other forms of credit in the future.
Some individuals face obstacles to getting approved because they have no credit history. A credit builder credit card offers a clear path on how to break out of this cycle.
How a credit builder credit card works
Many financial institutions offer credit builder credit cards to individuals who are 18 or older and do not have credit history. Generally, credit builder credit cards require a cash deposit to serve as collateral and may feature higher interest rates than other types of cards. However, the purpose of this type of card is to help you establish credit.
Following an application and qualification process, if you get approved, follow these four tips to establish a good credit score:
- Use the credit card. Simply having the credit card does not build or improve your credit score. You will need to use the card and pay off your balances for a period of time before you build your credit history.
- Make monthly payments on time. If you are late in making payments or do not make the minimum monthly payment, you may damage the little credit history you have. While building credit history, make sure you are building a positive history by borrowing only how much you can pay back each month.
- Do not reach or exceed your credit limit. Try to not exceed 30% of your credit limit in any given month to avoid lowering your scores. If you want to avoid monthly interest payments, pay the account balance in full each month.
- Keep the account open. The longer you keep your account open and in good standing, the better impact it will have on your credit score. If you want to close the account, close it after you have opened other credit card accounts and have maintained those for one or two years.
Credit builder credit cards have made building credit history more obtainable. If you’ve been denied a traditional credit card due to no credit history, speak to your banker to learn more about this option.
