Choosing the Right Credit Card
To get a credit card you usually need to have a credit history, but to build up your credit you need to have a starter credit product such as a credit card. This is a classic example of the chicken and the egg problem! So what are people with no credit history left to do? Furthermore, what happens to those who have a poor credit history?
Young people or recent immigrants often fall into the group with no credit history, but those with bad credit are typically from all walks of life. Many of those with no/bad credit would probably like to obtain a mortgage at some point in the future. Mortgages generally require a good credit score, something that takes time to achieve. A credit card can help get those individuals there. Furthermore, a credit card provides many benefits including the ability to shop online and the convenience of not having to carry around cash.
Thankfully there are credit card solutions for customers with no/bad credit:
Many credit card issuers offer secured cards. These cards usually require a security deposit of 100% (however it could be more or less). If you want to apply for a $1,000 credit card, you would likely have to put $1,000 aside, which would be held as security. Once you build up enough credit history, the credit card issuer would consider approving you for an unsecured card and releasing your deposit.
The best option for students. Credit card issuers often skip the 'no credit, no card' rule and can issue you a credit card with no credit history if you provide proof that you're a student. These cards even sometimes come with great benefits and rewards. Don't expect to get a high credit limit right away though.
You may become an authorized cardholder on someone else's credit card account. In this case, you would be issued a credit card to use as you wish. The credit limit would be shared with the primary cardholders. This option works well for children who are old enough to exercise basic financial discipline but are not yet eligible for their own credit card. In that case, the parents would add the child as an authorized cardholder on the account. Doing so would have no impact on the authorized cardholder's credit history.
A credit card that allows you to deposit money onto the card and deducts from the balance as you use it. It is a good option if you want the convenience of being able to pay with a credit card, but has minimal impact on your credit history. In addition, every time you use up the balance you have to re-load the card.