Credit cards are the most common credit-building tool available. If you use them responsibly, they can go a long way toward boosting your credit score, which in turn improves your access to better credit cards and lower interest rates. The Catch-22 is that if you don't have a credit history to speak of, you may be unable to find credit card issuers who are willing to help you build it.
But don't give up hope. Here are a few tips to help you improve your odds of getting approved for a credit card, even if you don't have any credit history.
Make sure you have an income
It's all about risk for credit card issuers. They want to make sure that they're going to get the money they lend you back at some point. Being able to show a steady source of income can help to set their minds at ease. The amount of income you'll need to have in order to be approved will vary from one card to the next. Obviously, the more money you have, the better your chances of approval and the higher your credit limit will be.
But more important than your income level itself is your debt-to-income ratio. This is a measure of how much money you're paying out each month to cover existing debts compared to how much money you have coming in. You could be making $100,000 a year, but if $80,000 of that is going toward existing debt, most card issuers aren't going to feel too comfortable extending you a large line of credit. Conversely, if you only make $30,000 but don't have any debt, a card issuer might look upon you more favorably. Ideally, you should try to keep your debt-to-income ratio at 36% or less. Getting a job is one way to lower this if it is high.
If you don't currently have a job, seek one out. Ideally, you can get something full time. Otherwise, look for steady, part-time work. Side gigs you work occasionally or sporadic freelance jobs aren't going to cut it.
Get a cosigner
If you're struggling to get credit on your own, you may have better luck with a cosigner. This lessens the risk to the card issuer because if you don't pay, it can get its money back from the friend or family member who put their own credit on the line for you.
It's important to think long and hard before you ask someone to cosign on your credit card. You need to use the card responsibly and make sure that you can pay the balance in full each month. If you can't, you risk placing a huge financial burden on your cosigner, which could damage your relationship. Plus, if you feel that there's a risk you might not be able to pay, that may be a sign that you're not ready for a credit card right now.
Try some alternative credit cards
Most people want to run out and buy a fancy rewards credit card right away, but these can be some of the most difficult cards to get approved for. You may need to set your sights a little lower at first until you build up a credit history.
A secured credit card is one option. These cards are real credit cards that report your payment history to the three credit bureaus each month, so they can help you build your credit as long as you pay on time. Because these cards are designed for high-risk individuals, interest rates are usually higher and there's often an annual fee -- sometimes over $100. You also have to put down a security deposit (usually around $200) that's equal to your credit limit. That way, if you don't pay back what you owe, the card issuer isn't out anything. If you do pay back what you borrow, your deposit will be refunded to you when you close the account.
College students may want to investigate student credit cards. In order to qualify, you must be at least 18 and, in most cases, you're required to provide proof of enrollment at a qualified university. Like secured credit cards, student credit cards often come with low credit limits and high interest rates and fees, so it's important to avoid carrying a balance.
If you have a favorite store that you shop at often, you may want to look into getting its store card. These cards can typically only be used at that particular store or any of its partners, and credit limits are usually lower than on a traditional credit card. However, they can still help you build credit, and there are usually fewer requirements for approval. Plus, you may be able to earn rewards that you can put toward future purchases.
The bottom line
For most people, the trickiest part is getting that first credit card. Once you've proven yourself to be a responsible payer, a host of new opportunities opens up to you -- enabling you to upgrade to that top-of-the-line rewards credit card.
Now that you understand the factors that impact your chances of credit card approval, you can work on making yourself more appealing to card issuers so you can get that first card to put in your wallet.
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