5 Ways to Build Your Credit When You Have None
It is great to make it into your 20s or even early 30s without accruing debt, but that also means that you probably do not have any credit history either. Believe it or not, having no credit history at all can be worse than having a bad credit. Without a positive credit history, it is nearly impossible to buy a car, rent an apartment, or eventually buy a house. Many of the things in life that most upwardly mobile people want will be out of your reach if you do not establish a good credit history.
Secured Credit Cards
Almost anyone can obtain a secured credit card. As long as you have a reasonable amount of income and you pay the required deposit, you can find a company that will gladly issue you a secured credit card. The downside of secured credit cards is that they often charger high interest rates and extra fees, but they do help you build a positive credit history. Make small charges and pay off the full balance every month. After six months to a year of steady, on-time payments, you will see your credit score go up and you may then qualify for a better deal on an unsecured credit card.
Get a Personal Loan
Personal loans are a great way to build credit. The best way to get a personal loan with a company like creditloan.com or any other lender is find a co-signer with a good credit history. Having a co-signer is like giving the bank collateral to secure the loan, so the bank will be much more willing to give you a chance. Do not borrow more than you can afford to pay back on a monthly basis, and above all else, do not make any late payments. Getting a personal loan only helps you if you make regular monthly payments on time without fail. Late or missed payments will not only harm your credit rating, but your co-signer’s as well.
Pay Your Bills
It goes without saying that you cannot establish credit worthiness if you do not pay your bills on time. Even though places like utility companies and doctor’s offices do not report to the credit bureaus, they will if you fall behind and go into collections. Medical bills count too. It is counterproductive to try to establish a good credit rating if you have negative collection items showing up on your report. If for some reason, you do end up with something in collections, contact the agency right away and try to make payment arrangements. If you show you are making regular payments on your debt than it will have less of an impact on your credit score.
Store brand credit cards, especially gas cards, are often easier to get even if you have very little or no credit history. Although these cards do not boost your credit score as much as a regular VISA or MasterCard, they are unsecured lines of credit so they do help. Do not get carried away though. One or two store brand credit cards are all you need to begin establishing credit. Applying for too many cards in a short period will actually hurt your credit because it racks up inquiries on your credit report. Additionally, do not go on a spending spree because you are excited by your new line of credit and max the balance out. Try to pay off your debt when the bill comes in.
Become an Authorized User
If someone with good credit, for example one of your parents, puts you as an authorized user on his or her credit card account it helps your credit standing as well. As long as the person who added you as an authorized user pays his or her bill pay on time, you can “piggyback” off that person’s good credit and start establishing your own. This is the reason why parents often make their college-age children authorized users so they can help them establish a good credit history. Keep in mind that this is a very generous privilege though and make sure you do not do anything to put the person’s account in bad standing.
Debt is not always a bad thing. If you manage debt correctly, it can actually be an asset. One of the key things credit card companies look at is credit to debt ratio. It is good to have a few healthy lines of credit, but make sure that you do not let your balances run too high, especially when you are just starting to establish your credit history.