Credit Cards for People with no Credit History
Credit cards have become a necessary part of daily life. Plastic money provides people with the flexibility and convenience of knowing that they can buy today and pay tomorrow. There are many types of credit cards but for practical purposes we can divide them into 2 broad categories, viz. secured and unsecured.
Credit History and Unsecured Credit Cards
When we talk about credit cards we generally refer to unsecured credit cards. They have a revolving structure that gives us the benefit of borrowing today and paying tomorrow. Revolving structure essentially means that we have to pay a minimum amount each month and the remaining balance on the card is subject to a finance charge which is calculated using an annual percentage rate (APR). Credit scores assigned by the three credit bureaus in the U.S. are called the FICO scores, and are a measure of your credit worthiness. This score is assigned on the basis of the information collected by the bureaus from data providers like the utility companies and other lenders. In fact 35% of the FICO score is based on credit history. So, for people with no credit history, obtaining a credit card can be a problem. Fortunately, there are ways to work around this problem.
Issuing Credit Cards for People who have no Credit History
The problem of no credit history is generally faced by college students (foreign / resident), workers on non-immigrant visa, visitors, foreign investors and undocumented immigrants.
Students (foreign/resident) and Workers on Non-immigrant Visas
In this case the problem can be tackled easily. They would be required to provide proof of address and their SSN to the credit card company. Students from foreign countries are expected to obtain the SSN. The SSN would enable the credit card company to pull up the necessary information from the credit bureaus. Since students have no prior credit history, their credit limit will be low. Over a period of time they will have to build their credit history and then their credit limit would automatically increase. This is applicable to both U.S. citizens as well as foreign students receiving assistance from accredited universities.
Foreign Investors and Visitors
Foreign investors and visitors who owe taxes can obtain an Individual Taxpayer Identification Number (ITIN). Once they have this number, they are eligible for a secured credit card.
The difference between a secured and an unsecured credit card is that, the former is backed by a deposit made in a checking or a savings account. ITIN helps to obtain information about the person for the purpose of assessing their credit risk profile. The bureau has a mathematical algorithm to calculate the credit risk, based on which the credit limit is decided. The amount deposited is generally between $300 and $10,000. The credit line will depend entirely on the amount deposited; the deposit as such, may not earn interest. Again, minimum payments have to be made regularly. Also, it is a good idea to pay off the balance on the credit card on a monthly basis since the APR on a secured credit card is very high. The deposit functions as collateral for the secured credit card and in case of default, the deposit would be confiscated by the bank.
Undocumented Immigrants
Undocumented immigrants working in the U.S. can also obtain the ITIN since they are obligated to pay taxes. Once they make the required deposit, they are eligible for a secured credit card.
Finally, department store credit cards can be an easy way out for people who find it impossible to build a credit history. These stores require minimum information; sometimes a phone number will suffice. The biggest disadvantage is that their APR is very high. In this case, it is important to verify whether the store furnishes information to the credit bureaus, since credit history can be built only if the information is communicated to the bureaus.
Owning a credit card allows a person to enjoy many benefits, but it is important to realize that a good credit history has to be built in the long run. Bad credit can be an impediment to obtaining (unsecured) credit cards and this might result in a person having to build a good credit history all over again.
