Q: Where can I find credit cards with a $500 credit limit that are easy to get approved for? I think this would be best to control my spending but will the low limit be OK for my credit score in 2013?
A: There are two different questions here so let me break it up and answer each part separately…
$500 credit limit: bad or good for your credit record?
The answer isn’t clear cut and here’s why – a $500 limit credit card won’t be the best for building credit, however, neither is having a high credit limit with a lot of debt. There are pros and cons going either way. Here is a list of good entry level cards with lower limits.
If you think having a high credit limit will cause you to spend excessively and get into debt (and it sounds like it will, since you asked the question) then I think it’s a smart decision to have a low credit limit of $500. In fact, I commend you for being honest with yourself and admitting it could become a problem. Most Americans in your shoes would never confess that!
As far as your credit history and building it, having a low limit will adversely impact your ability to get approved for credit in the future for higher amounts (i.e. car loan, mortgage, or a higher limit credit card). However there are some alternative ways you could bypass this issue…
Have a family member add you to their account, but not give you the card
If you want to have a high limit credit card on your record, but don’t actually want the card, then you could have a trusted family member add you to their account and they would never give you the card.
I am normally against adding authorized users, because if the person rakes up debt and flakes, the original account holder is left hanging (and that could ruin a relationship). However if you are never given the card in the first place, I don’t see how this could be a problem in your circumstance.
Have loan(s) of higher value
If you already have a car loan or student loan on file, then you will have a record of higher credit being given to you. However loans are considered installment credit. Credit cards are revolving credit. You need both to obtain a high score, so consider doing the authorized user idea mentioned above, too.
Aside from that, a card with a $500 limit may adversely impact your credit in another way – credit utilization. The percentage of credit used on a credit card is called credit utilization. You want to aim and keep this number below 30% at all time. Obviously if you have a credit card with a $500 credit limit, that could be hard because it would mean never using more than $150 of the limit.
How do you get around this predicament? Well, it’s typically the billing cycle’s closing balance that is reported each month to the credit bureaus. I suppose you could make an early payment each month before your billing cycle closes, to bring the balance below $150. That way when the cycle closes, it would show 30% or less for the credit utilization.
Getting credit cards with $500 credit limit?
Although it would be a very unusual request, I suppose it would be possible to ask for a $500 credit limit on any credit card (if you can qualify for the card). The problem is that you may be tempted to increase it, or the credit card company may increase it automatically when they do their “account reviews” which typically happen 3 or 4x per year. Conclusion? An unsecured credit card would be risky for your situation.
I would recommend you consider a secured credit card. Not only would it be easy to get, but you could also set the limit at $500 and make sure it stays there.
- With a secured card, the approval is guaranteed even if you have bad or no credit history.
- You put up a security deposit and that amount becomes your credit limit. As long as your account remains in good standing, your security deposit will be fully refunded to you when/if you ever choose to close the account. With some secured cards, your deposit will even be earning interest while it’s in there.
For these reasons, I believe your best bet for a $500 limit credit card would be to get one that is secured. Good luck!