Credit scores rank as one of the most important numbers that may exist aside from your social security number and bank account balance. They’re instrumental in affecting major life decisions such as buying a home, obtaining a student loan, or even getting married in some instances. Too much of it can be an excuse to go into high debt and too little of it can eliminate you from the most basic of things like a credit card. But what happens when you don’t have enough credit history to qualify?
Pick Your Card
Credit cards used to be granted based on a person’s ability to repay their debt as determined by their income and payment history. Now they are granted based on five or more factors carefully run through a complex algorithmic system of numbers and data sets. For those who have a higher score, the promise of a lofty limit awaits them. If your personal score isn’t something to write home about then an alternative route does exist.
Secured credit cards or collateralized credit cards are a form of debt back by an asset which in this case is your money. The amount of money required as a security deposit varies by lender and is typically between $300 and $3000 dollars. The interest rates on these cards are in the range of 22 percent and 27 percent on average and an annual fee or membership fee is required for granted access.
Choose Your Limit
An added benefit is the mere fact that you are assigning a credit limit to your first card. As soon as the initial deposit and fees are paid then you are granted full credit card privileges as you would have with any other type of credit card. Not to mention that you can exceed the starting limit offered by many unsecured cards.
Make Your Payments
Once you have made a successful number of on-time payments then each card reports to between one and three of the major credit bureaus which boosts your credit score. As your score steadily increases, mainstream credit companies take notice and pre-approve you for one of their secured cards. Although with a lower limit initially, you will have the chance to earn regular credit limit increases and other perks such as cashback rewards.
Watch The Offers Pour In
The opens the door to alternative opportunities for credit-worthy customers like lower interest rates on your auto loan, approvals on brokerage accounts, an apartment in your dream neighborhood, or a small business line of credit. By establishing multiple forms of credit and contributing to your debt to credit ratio, you can move up the credit ladder pretty quickly.
By opening up the one card and beginning your credit journey you open yourself up to endless possibilities. The only downfall is that just as quickly as your score can rise, it can also fall hard and fast. One 30 days late payment can tank your score as much as 100 points in a billing cycle, Using credit responsibly by only borrowing what you can afford to pay back is a surefire way to avoid the downward spiral and maintain a healthy credit profile for decades to come.