Escaping the Credit Card Catch-22

It’s the age-old chicken and egg scenario. It’s hard to get a low-interest credit card or loan without a decent FICO score and a substantial credit history. But it’s hard to build a credit history and earn a solid FICO score, without holding a credit card. Fortunately, this Catch-22 isn’t without solutions. Tracy Becker, president of credit consultancy North Shore Advisory, knows a few tricks of the trade. Here are her most salient points of advice.

  • Become an “authorized user” on someone else’s primary account. Another option is to ask a parent or trusted person to be added as an authorized user on his or her account. The “date-of-open” on your new card will be an average of your history and the primary account holder’s history. But be selective about whose credit history you latch on to. If a primary user starts behaving badly and their score drops, your score will plummet along with it, defeating the credit-raising mission altogether. The key is to look for someone with a good, 20-to-30 year credit history.
  • Scour the Internet for the best card. There are a number of sites that allow you to compare credit cards side by side. NerdWallet and Bankrate are favorites,” says Becker. When using sites like these, there are certain features to look for. The most important point of comparison is a card’s interest rate—or nominal annual percentage rate (APR). APRs can range from 7% to 26%, so take the time to seek out the card with the lowest rate. Another factor to consider is the annual fee. One in four credit cards imposes annual fees, ranging from $18 to $500, with a median of $50. Finally, you may want to take loyalty and cash back programs into consideration. Some credit card companies will pay back a portion of moneys spent, typically in the neighborhood of 2%-5%.

Extra Credit: lesser-known ways credit cards can benefit you

“Whether you’re 18 or 90, building good credit is a very important part of being in this country,” says Becker. “You can use credit cards to help you fund your business in the beginning, when no bank will give you a loan because you don’t have any history.”

Acquiring a credit card and establishing a good credit score can help you secure car and home loans, rent apartments, and generally pay lower interest rates. But there are other, less obvious benefits. For example, when a prospective employer is on the fence about hiring you, a good credit score can tip the scales in your favor. And you can hook up utilities without paying exorbitant deposits. Furthermore, if your line of work is largely commission-based, credit cards can help see you through lean times.