How to Build Credit When You Have None
How to Build Credit When You Are Starting Out
Trying to build credit from scratch after graduation can be frustrating. Often, the lack of a credit history means being turned down every time you apply. Although establishing credit may seem impossible, understanding the process can help open some very stubborn doors.
You may have more history than you think
If you financed your education, credit-reporting companies are already taking notice. Make the most of this by making student loan payments on time and in full — it will help you gain future credit approvals.
First credit cards
Although having well-established credit is typically required for credit cards with the best rates and terms, newcomers still have options:
1. Secured credit cards
Secured cards can be a perfect tool for establishing credit. The card is backed by money you put in a savings or checking account, and the credit limit is equal to that amount. It functions like a traditional credit card, but because you put up cash as collateral, lenders such as Actors Federal Credit Union are often more willing to approve an application even if you have no credit history. By consistently making payments in full and on time, you can build a track record with an eye toward qualifying for an unsecured card.
2. Gas cards
Oil companies may also extend credit to those with no history, and because you have to buy gasoline anyway, using these cards regularly is effortless. Just make sure you pay on time.
3. Store cards
These cards may be known for low limits and high interest rates, but the flip side is that retailers are more likely to take a chance on someone with no credit history than most major credit card providers. Again, to make this work for you, pay the bills on time and in full.
Other ways to establish credit
If you can get a card on your own, or you need an unsecured card, you might take another approach: getting a co-signer for a credit card or becoming an authorized user on a family member’s card, provided your activity will be reported to the credit bureaus. You should ask someone who routinely pays their bills on time, because when they do, it will strengthen your credit score as well as theirs.
Another effective strategy is to take out a small, secured loan. This lets you build solid credit while earning interest on the cash held in a savings account.
Once you get a credit card, use it often enough to show you’re a responsible borrower, but keep your balance to less than 30% of your credit limit. This shows the credit bureaus you know how to avoid overextending your finances. Above all, always pay the bill on time.
By doing this responsibly over time, you’ll build a solid credit history. And that will open other financial opportunities and allow you to enjoy the perks that accompany having a top credit score.
Roberta Pescow, NerdWallet