Credit cards provide an easy and flexible way to make purchases, with some offering rewards like cash back, airline miles or hotel points. Plus, they can help build up your credit if your history is limited or poor.
However, the minimum credit score required to obtain a card varies by type and can depend on your income.
Secured Credit Cards
Secured credit cards offer excellent solutions to those with poor or no credit. These cards require a refundable security deposit that matches the card’s credit limit; lenders use this money as an insurance against possible debt collectors if you miss payments and fail to repay debts on time. And because these types of cards report to major credit bureaus, on-time payments and reduced balances can help improve your score significantly.
Secured credit cards may charge fees and higher interest rates than their unsecured counterparts, but making timely payments will quickly reveal its advantages. When demonstrated responsible spending habits are met, some card issuers even offer to upgrade you from secured to unsecured status and refund any security deposits made. In addition, many secured cards come equipped with features designed to teach healthy credit practices as well as monitoring tools – some even providing clear timelines for account reviews and upgrades.
Student Credit Cards
Student credit cards provide young adults with an opportunity to start building credit histories from scratch. With higher approval odds than most other types of cards and potentially offering rewards programs, these cards often make the right choice.
Credit card issuers assess your income and spending habits to assess if you can afford both the minimum monthly payments as well as any existing debt that might exist, before approving you for a card. Student cards typically come with modest credit limits so it shouldn’t be easy to amass large balances on this type of card.
Student credit cards often offer rewards that range from cash back at restaurants and retail stores to discounts on streaming subscriptions or delivery services. Make sure you read all of the fine print, however; some rewards often come with additional fees such as annual or maintenance fees, which could increase if your balance remains from month to month.
Retail Credit Cards
Retail credit cards are easier than regular cards to acquire and may help those with less-than-ideal credit build or rebuild it, yet consumers must remain wary of getting caught up in big discounts in exchange for high interest cards that won’t help improve long-term financial health.
The National Foundation for Credit Counseling notes that retail credit cards often feature higher interest rates, lower credit limits and steep penalty fees; furthermore they don’t usually help increase a consumer’s utilization ratio (one of the major components in calculating their score).
Store cards typically can only be used at the specific retailer from which they were issued; however, some retailers offer traditional credit cards that can be used across multiple brands. To find out whether such benefits apply outside a single brand’s stores, look for “open-loop” logo on cards issued.
Alternative Credit Cards
No matter your credit situation, there are cards available to help build your financial history. These include secured credit cards, student credit cards and store credit cards. Some even report to credit bureaus so as to help improve your score over time; and nontraditional underwriting methods like looking at bank account activity to generate a “Cash Score,” an accurate measure of creditworthiness.
As an alternative to credit cards, consider prepaid debit cards which function like credit cards without incurring debt. Prepaid debit cards may be beneficial for people hesitant to exceed their credit limits or who have experienced past issues with credit. Many retailers even offer co-branded prepaid cards featuring major credit card company logos! Alternatively, personal loans offer quicker approval odds than credit cards when used for emergencies or big purchases; such as financing large ticket items secured with assets like cars or term deposit accounts.