You need a credit history, to be able to scale through the process of getting a credit card and other types of loans. You can have such a hard time qualifying for a credit card or other types of loans if you do not have a credit history. Establishing your initial credit history can be a catch. Without a credit history, not many places will be willing to offer you credit. Thus you may wonder how you can establish credit if the body is willing to offer you one. Even though it can be quite frustrating, the good news is that there are some things you can do to establish credit without a credit history.
What Credit Score Do You Start With?
If you are still a newbie in using credit, you’ll likely come in with a score in the range of 600, which will keep improving as long as you keep making on-time payments. Understand that, the longer your credit history, the more accurate your score will be.
How To Establish Credit With No Credit History
Become an authorized user on another person’s credit card
You can start building credit by becoming an authorized user on another person’s credit card. If you find someone like a parent or close relative with a good credit history who is willing to make you an authorized user on their card, your borrowing can help in establishing your credit credentials. Note, however, that the primary cardholder is obligated to make the payments. Since you are seeking to establish a credit history, you have to check with the card issuer to make sure that your activity on the card is reported to a credit bureau.
Find a co-signer
Apply for a credit-builder loan
A credit builder loan is a loan that is specifically used to build a credit score. Here, the lender will put the money you borrow into an account, and you in turn make payments on the money until the full amount is paid. The credit rating bureaus will be notified by the lender as you make your payments. When the loan is paid, the money is released to you and the credit bureaus now have a basis for assigning your credit score. The best places to check for this sort of loan are credit unions and community banks.
Apply for a secured credit card at a bank
With a small deposit of about $500, you can get a secured credit card. This is a card that allows your bank to tap your account if you fail to pay a bill. Your credit limit is the amount you deposit. Even though the card is not useful for making big purchases, most secured credit cards have a limit under $500. If you make on-time payments and leave your security money untouched, you’ll start proving your creditworthiness. This will boost your credit score. Once your credit score is strong enough, you can close the secured card account and apply for an unsecured credit card.
Apply for a store card
Most retailers and gas stations will be willing to offer you a branded credit card even if you have no credit history. Be careful when using the card so that you don’t buy more than you would buy with cash. Ensure you pay off the entire bill at the end of the month and ask the department store to report your credit history to credit bureaus.
Report rent and utilities payments to credit bureaus
Rent reporting services like Credit Karma adds rental payment in your credit history. Thus, if you make on-time payments, it helps in building your credit score. On-time payment of utility bills is a score builder. As such, you should ask your phone, water, electric, gas or cable company if they report your payments to credit bureaus.
Don’t use too much credit
Try as much as you can not to use too much credit. This is because the second biggest component of your credit score is how much of your available credit you use. Thus, your goal should be to use less than 30%.
Avoid applying for too many cards
It’s best to start with just one credit card and add another later at least a 6 months gap if you need it. When you apply for two to three cards at the same time, lenders perceive you as being desperate.
Guard your credit history
If you have an account you are not using, as long as you are not paying an annual fee on it, put it in a safe place instead of closing the account. This can help your credit utilization rate since it is computed with the aid of combined borrowing limits on all your cards.
Watch out for identity theft
Check your monthly bills to confirm that you are the one who made all the charges on it and not someone who has stolen your identity. You can also get a free credit report from each of the three major credit bureaus every year to ensure that all the activities on it are yours.