It’s one of life’s crazy ironies that you need to borrow money to build credit, but it’s difficult to do so unless you already have good credit. So if you find yourself in need of a credit card to help improve your credit, you won’t have many choices.
In fact, you only have two. The first are secured cards, which are available to just about anyone who doesn’t have a pending bankruptcy and can verify their identity. These cards require a security deposit, which determines your credit limit — so a $500 deposit is a $500 credit limit.
Otherwise, secured cards are used just like standard credit cards: You make a monthly payment, and you can incur interest charges if you carry a balance.
The other type of cards you can use to build credit are specifically marketed to those with fair or average credit. These cards typically offer few rewards and might not have the most competitive terms, but they’re available to a wider group of applicants.
Here are three of each kind to help build your credit…
Make a refundable deposit of between $200 and $3,000, and that becomes your credit line. The interest rate is 17.50 percent APR — very competitive for secured cards. Your monthly payments are reported to the three major consumer credit bureaus, and there’s no application fee or credit check.
Annual fee: $29
You start using this card after making an initial deposit of as little as $49. Benefits include access to Capital One’s Credit Tracker app, which not only shows you your credit score but can peer into the future with a “what-if” simulator. And since Capital One offers non-secured cards, you’ll eventually be able to move to a standard Capital One card after establishing a history of on-time payments. The standard purchase APR is 22.9 percent.
Annual fee: $29
This card has several things going for it, including frequent-flier miles and travel discounts. In addition, you receive 5,000 miles with the South American carrier LAN, as well as one additional mile per dollar spent. It also offers a single 10 percent discount each year on LAN ticket purchases up to $500. The minimum deposit is $300.
Annual fee: This is one of the rare secured cards with no annual fee for the first year. It’s $25 after that.
Standard, non-secured credit cards
This basic card is offered to those who have had credit problems in the past but don’t have poor credit. You can expect a modest credit line at first, but you might receive a higher line after making your first five monthly payments on time. While this card offers no rewards, it comes with benefits such as extended warranty coverage, auto rental insurance, and a price protection policy.
Annual fee: None the first year, $19 after that.
This student credit card is offered as a way for young adults to build a credit history. You start off with an introductory interest rate of zero-percent APR for 15 months and subsequent rates of 10.99 to 20.99 percent, depending on your creditworthiness. Other benefits include mobile banking and text alerts.
Annual fee: None
This card offers students 2 percent cash back on up to $1,000 spent each quarter on gas and at restaurants, and 1 percent cash back on all other purchases. Rewards can be redeemed in any amount and at any time for merchandise, gift cards, statement credits, or just a check. You also receive a free FICO score each month to keep track of your progress.
Annual fee: None