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Having a credit history is as important as having a social security number. It provides credibility to the individual and validates the financial situation. Every major financial transaction involves credit checks, so having no credit history creates a situation similar to having a bad credit history. Although having no credit history means being debt free, it can cause many inconveniences even for small financial dealings.
Applying for credit cards is a first step towards building a strong credit history. There are many credit cards available in the market. They are categorized mainly as reward credit cards, secured credit cards and prepaid credit cards:
Reward cards
Reward cards are the regular credit cards that have an approved credit limit and some reward scheme to benefit the user. Some of these credit cards require credit checks, but some of the cards are designed for first time applicants. These cards will have a slightly lesser credit limit and a basic reward scheme like a point system. Cards can be upgraded for better reward schemes and better credit limit after continued use and a good credit history is built. There are many credit card companies that offer better credit limits and reward schemes, but charge annual fees for the membership.
Secured Credit cards
Secured credit cards work slightly different than that of regular credit cards. Secured credit cards are usually an option for people with bad credit scores, but they can be a good starting point to learn about the working of a credit card. Making sure that the credit card company reports the activities to the credit bureaus is very important. Secured credit cards require the applicant to make a deposit in order to use the credit card, which makes it secure. It also charges higher interest rates than the regular credit cards, and may be an annual fee depending upon the company. Before choosing a secured credit card, exploring the option for regular credit cards can be advantageous. Secured credit cards provide a good opportunity to build a credit history and improve the credit scores.
Prepaid Credit cards
Prepaid credit cards are ideal for beginners who want to learn the operation of credit cards, but they do not do anything to help build a credit score. They work pretty much like debit cards, but they offer financial freedom and ability to do internet shopping. Prepaid cards only work if a certain amount of money is loaded to the card in advance. Although it does not help build a credit score, it is good to learn money management before applying for credit cards.
Low interest credit cards or even no interest credit cards are available for applicants who do not have a credit history. However, this is more an advantage to people with low credit scores, since they are usually combined with the balance transfer option. Choosing one of the above cards is the best and most convenient way to start building a credit history. Credit history can be built by applying for personal loans, however it is a long and tedious process.
