Building Credit from Scratch: Your First Credit Card

If you are trying to rebuild your credit or are just starting out and have no credit history whatsoever, getting approved for your first credit card can seem like an insurmountable task. If you have applied for several credit cards and keep getting turned down, do not worry. A change in strategy will put plastic in your wallet before you know it.

One of the most common mistakes that people make when applying for credit cards is applying for the wrong card. Major credit cards such as Visa, Master Card, Discover and American Express are very difficult for the first-time card holder to get. Finance cards, on the other hand, are much easier to get. Finance cards are credit cards that are issued through a store or franchise and can only be used at that business. Finance cards include cards issued by Target, Wal-Mart or Best Buy, etc.

Granted, finance credit cards do not carry as much weight on your credit report as major credit cards, but they are a great way to start out. If you find it difficult to get a finance credit card, a secured credit card might be your best bet. Secured credit cards are especially helpful if you have bad credit.

Secured Cards

A secured credit card is a card that is issued to you in exchange for a deposit in the amount of all or part of the credit limit. It may sound ridiculous to pay $500 to get a $500 credit card, but a secured credit card can be a major boost to your credit standing. Why? If you get the right card, a secured credit card can have as much impact on your credit report as a major credit card.

When you apply for a secured credit card, you should be sure of two things: that the card will report your credit limit no matter how low it is and that the card will not show up as a secured credit card on your credit report.

Getting a card that reports the credit limit is very important. This is due to the way that credit scores are calculated. In order to score well, your debt ratio on revolving accounts should be less than 25%. This means that a card with a $1000 credit limit should carry a balance of $250 or less. If your secured card does not report the credit limit, credit reporting agencies will use the total amount charged as the credit limit. This will make it seem like your debt ratio is 100%.

It is also extremely important to make sure that your card will look like any other major credit card on your credit report and not look like a secured credit card. If your credit card company reports your card as secured, your credit score will be negatively impacted.

Getting your first credit card can seem impossible, but it is not. If you go about it the right way and apply for the right types of cards, you will be approved before you know it.