Having no credit history a very risky prospect for lenders. The amount of credit available in these cases can be almost next to nothing. However, you will have to start somewhere in order to build some credit. In the process, you might have to encounter some outrageous offers and deals too, so be careful with their regulations. Here are some of the things you must be prepared for, when starting out with no credit history.
High interest rates
There are instant approval credit cards
and other online offers where those with no credit history can still get a credit card. But the interest rates on these credit cards could be exorbitantly high. Since you represent a high risk for the lender, the interest rate is also going to be high, because high risk is associated with high yield. Customers need to be careful in such situations, because missing the payment means a large interest rate that must be paid back. In fact such credit cards are really not for high expenses and have to be used sparingly in order to build a good credit history
. You should be absolutely sure you can pay back the outstanding balance before the bill payment deadline. In fact, the interest rates on some of these no credit, credit cards could be exceeding 50%, which means if you end up with an outstanding balance of even $100, the debt will double in 2 months time.
Low credit limit
Credit limits always follow the creditworthiness of a card holder. Therefore if you have no credit history there is no reason why the card issuer can trust you with a big debt. You will only receive a small credit limit. This has two consequences. Firstly you cannot go for bigger expenses on your credit card even if you know you can pay back the amount at the end of the month. Secondly, you will always have to keep an eye on the overdraft fees, which is likely to be charged to you if you cross the credit limit. This will hurt your credit history right at the start which is something you would want to avoid.
Varying types of fees
The terms on some of the credit cards are very severe for credit card applicants with no credit history. Prepaid credit cards
are easier to obtain if you have no credit history. But even in their case, you are looking at various types of fees like activation fees and application fees, transaction fees, monthly or annual fees, late fees, overdraft fees etc. even before your account is opened. Interestingly, the new credit card reforms look to limit the initial fees to fewer than 25 dollars to protect the customers. Nevertheless, cardholders have to constantly keep an eye out on their outstanding balance whether it is a credit or debit cards.
Even if you pay your bills consistently and charge your card to a decent extent, it is hard to get any rewards on your card for the first few months.