No Credit? Build Your Credit History with a Visa Credit Card

by Laura Ginn Writer

If you're just starting out and have no credit history, you may find it difficult to get a credit card. Lenders rely on your credit history to determine their risk in extending a line of credit to you, and if you have no credit history, they have no way of determining how well you handle debt and whether you will pay your bill every month. But how are you supposed to build your credit history if no one will lend to you because of your lack of credit? That's where student credit cards and first credit cards come in.

Student Credit Cards

If you are a college student without a credit history, you may be able to secure a Visa credit card specifically designed for those in your situation. Credit card issuers know that everyone must begin somewhere in building their credit, and many are willing to take a risk on students who have no credit history. The caveat is that the interest rates on student credit cards can be very high, generally ranging from 29.9 percent to 34.9 percent or higher. This means that building your credit may come at a stiff price if you don't manage your credit well.

Student credit cards have a fairly low credit limit, typically around £1,200. Because the lender can't assess the likelihood of getting their money back, they limit the amount of possible indebtedness to protect their business.

When looking for a student credit card that will suit your needs, a thorough credit cards comparison is essential. Compare the annual percentage rate against any annual fees and any rewards programs offered through the card. Don't be swayed by what appear to be great introductory offers, such as 0 percent financing for three months or free cash withdrawals for a certain period of time. Cards with these offers generally have higher overall interest rates, and while it can be tempting to take advantage of the 0 percent interest by making large purchases on your card, if you don't pay them off by the end of the specified period, the high interest charges will add up very quickly to an unmanageable amount of money, sinking you into credit card debt right out of the gate. This, in turn, can make it very difficult to get a loan in the future for a car or a home without going to some lengths to improve your credit score.

First Credit Cards

For the 50 percent or so of UK residents who don't go to college, the best bet for building credit is the first credit card. Like student credit cards, these typically have very high interest rates, which will likely be reduced once you establish a history of paying your bill on time. As with student credit cards, many lenders try to lure your business with great sounding introductory offers, but these may come at a price later on, when interest kicks in. A thorough credit cards comparison is essential for finding a card with relatively low interest rates and no or low annual fees. Also similar to student credit cards, the initial credit limit will likely be lower than that of a standard Visa credit card until you have a proven track record of managing your credit wisely.

Establish Good Credit From the Start

Whether you opt for a student credit card or a first credit card, starting out with good spending habits will ensure that you build a good, solid credit history that will enable you to get better credit cards with lower interest rates and more benefits, such as points, cash back or balance transfers.

Pay your balance in full every month. This is the number one rule when building your credit history or trying to repair bad credit. Any balance that carries over will be charged interest, and these charges add up and compound quickly, leaving you a poor candidate for better opportunities later on. If you can't pay your entire balance, a good rule of thumb that will look good on your credit report is to maintain a 30 percent ratio of credit extended to the credit used. That means that if your card has a £1,000 limit, try to keep your balance at or below £300.

Pay on time, every time. Even one missed payment will damage your credit, especially when you're just starting out. Some student and first credit cards offer a text reminder when your bill is due. Consider setting up a direct debit to pay your credit card bill each month.

Order your credit history yearly and check it thoroughly for inaccuracies. Report any disputes to the reporting agency immediately.

Kristen Bailey would not dream of leaving the house without her trusty Visa credit card. To find out more about this type of credit card check out the free information provided by uSwitch.com, the UK’s leading online price comparison site.