Building Credit History with a Credit Builder Credit Card
What came first – the chicken or the egg? 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 credit card may be an excellent first step to start building a positive credit report and a score that will help obtain other forms of credit in the future.
Students, young adults and immigrants are often among those trying to establish credit history but face obstacles getting approved for credit due to no credit history. (Sounds a lot like the chicken vs. the egg debate, right?) A credit builder credit card offers a clear path on how to break out of this cycle.
As an immigrant myself, it was not until a year after making the U.S. my new home that I started to receive credit card offers and applications in the mail. These credit cards required a security deposit and came with a high interest rate, but since I didn’t have credit history, I didn’t have other options. After several months of regularly using the card, I finally had a credit score and credit history. Altogether, it took about two years after moving to the U.S. to earn a credit score.
How a credit builder credit card works
Many banks, including Bankers Trust, offer credit builder credit cards to individuals who are 18 years of age or older and do not have credit history. These cards often do not require a security deposit and come with the same interest rate as traditional credit cards. This means you do not need to pledge your own cash up front and you do not pay more in interest to build your credit history.
After getting approved for the Credit Builder Credit Card, 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 30-35% 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 and affordable than ever before. If you’ve been denied a traditional credit card due to no credit history, speak to your banker to learn more about this option.