There are all sorts of reasons that people find themselves ineligible for a credit card.
Some lack a credit history simply because they have never applied for a loan or put any bills in their name. Also, recent immigrants will find that their credit reports are blank slates, almost as if they had not existed before coming to this country.
Then, there is the range of tragedies and unfortunate circumstances that can inflict a terrible toll on credit. These include bankruptcy, long-term unemployment, divorce, overwhelming medical bills and natural disasters. As a result, people with credit scores under 650 may find themselves in the midst of a credit famine, when few options are available to them. (You can see where your credit stands using the Credit Report Card, a free tool that gives you your credit scores and how they compare to other Americans.)
But even those in a credit famine have some options. Here are a few tools that can help you out while you build your credit.
Strategies for Surviving Without Credit
For those in a credit famine, a secured card can be a lifeline. Some secured cards are offered to essentially anyone, while others require that the cardholder be out of bankruptcy for at least a year. Applicants must make a security deposit that usually represents their credit limit.
The cards can be used much like any other credit cards, and timely payment of monthly bills will be reported to the major credit bureaus. This is an important step toward rebuilding credit. After a history of making on-time payments on a secured card, many cardholders will be eligible for a small, unsecured line of credit on a basic credit card.
Utilizing Prepaid Debit Cards
For those without credit, everyday purchases are typically conducted with cash, or one of the growing number of reloadable prepaid debit cards that cater to the unbanked. For example, the newly enhanced American Express Serve card, which features free reloads, will soon offer a mobile phone app to capture and deposit checks, while the American Express Bluebird card offers cardholders mobile deposits, free electronic bill payment and even a paper checkbook.
Receiving Assistance From Others
A helping hand can co-sign a car loan, an apartment lease or a utility service contract. While this arrangement is helpful to those experiencing a credit famine, it carries distinct risks for the co-signer. Anyone who co-signs for a loan or makes you an authorized user on a credit card is liable for all of the purchases made by both parties, until the account is closed.
America is a land of opportunity, and that includes plenty of chances to establish, or re-establish good credit. Those who survive a credit famine, and receive a secured credit card, will find that more bountiful days are in sight.