By Brando Sencion, Program Coordinator
There are many ways to build credit: a credit card, a secured card, and small loans. These are the types of credit building products most commonly used by consumers. But as your credit journey begins it is important to avoid credit products with extremely high interest rates. According to WalletHub, the average credit card interest rate is 19.24% for new offers, and the average rate for secured credit cards is 18.81%. But some credit cards have interest rates up to 28%! Which can be dangerous for first time credit users. Especially for youth or new customers with limited knowledge or experience with credit.
Often credit card companies will charge first time credit card users high interest rates because of their lack of credit history. Which is common, but some credit companies create products specifically for those with limited knowledge and access of good credit products. These companies make it easy for consumers to obtain credit and often lack transparency around the true cost of the card. Which makes these types of credit cards or lines of credit predatory by nature. Be sure to take the time to understand the product or service you are obtaining to build your credit.
On the bright side there are products that look to help you build credit. For example, Amazon has partnered with Synchrony Financial to launch “Amazon Store Credit Builder,” a program that will lend to amazon shoppers with no credit history or bad credit. The card will be available to US residents over 18 with a valid social security number or ITIN, and can only be used for Amazon.com purchases.
The Amazon Store Credit Card Builder is expected to be a “secured card” with a credit limit up to $1,000. The card is considered secured because customers are expected to deposit a down payment for their credit limit. The deposit is refundable once the credit card is paid in full and you wish to close the account, or if you want to upgrade to their traditional Amazon Store Card.
In addition to credit card companies or banks some non-profits offer credit building programs. At SCCV, CreditBound, a credit building vehicle for youth (18-25 years old) combines an online platform with in-person credit education. The program offers youth entering the workforce the opportunity to build credit in a safe and controlled environment, paired with financial education to increase knowledge and access to financial wellbeing.