First time credit cards for people with no credit rating
There is an interesting Catch 22 with the credit rating system. If you have always paid cash for your purchases, it would seem that your credit rating would be pristine. But in fact, you have no credit rating at all. In order to create a credit rating, you must borrow money.
You can gain a credit rating by making any kind of purchase on credit. If you make your payments regularly, you will have an excellent credit rating. Getting a credit card and using it is one way to build a positive credit rating. But if you need a good credit rating in order to get a credit card, you find yourself in a no-win situation.
Credit card companies want to give you a credit card but they are becoming more risk averse as more and more cardholders are failing to pay off their balances. To counter the high risk of giving a credit card to someone with no credit history, most companies will issue a special credit card that is completely safe from their point of view.
Essentially, they require that you pay a certain amount of money into a special account. This could be as little as $300. The card issued is only good up to this amount. Once you use up the money, you can deposit more money. The idea is that if you show responsible behavior under this no-risk situation, the company may eventually issue you a regular card with no need for a backup account.
When credit cards first became popular, companies would send them out without any customer request. I received two gas company cards in the mail before I had any kind of credit. Those days are over for good.
Once you get that first credit card, not backed by your own money, you need to be very aware of the dangers of credit card use. The first thing to notice, before you even accept a credit card, is the interest charged on your balance. If you’re wise, your card will be used as a convenience and you will pay off the balance every month.
Credit card interest rates are usually high, and they can change the rates at any time and for any reason. If you only pay the minimum amount, you will find yourself quickly falling behind. You must also be diligent in checking your statement to be sure you are not being improperly charged a late fee or charged for credit card protection you did not request. These are two common credit card scams.
A credit card is a great convenience when it is not abused. When you carry a balance on your card, you are essentially borrowing money. The interest can quickly put you in an uncomfortable financial position. Use credit responsibly and it can be a blessing. Otherwise, it is “user beware.”