Establishing credit is important for all of us, but it can be tricky to do well. When you have no credit history, lenders don’t want to extend credit to you. So how are you supposed to prove that you are a responsible borrower if no one will give you the opportunity to begin with? Turns out, there are quite a few simple tricks that work. Read on for expert advice on how to build credit when you have none.
Building Credit As a Teenager
Your teenage years are a great time to start building credit so that you can get your first apartment or car loan when the time comes. These are the three best pieces of advice for anyone wondering how to build credit at 18 or younger:
- Become an authorized user on someone else’s credit card. When you are added to someone else’s account as an authorized user, you benefit from the age of that account and their payment history. A parent, grandparent, or other family member may be a good choice, but make sure that they have good credit. And you don’t even have to use the card that you are issued in order to reap the benefits. Just make sure that the primary cardholder confirms with their bank that they report authorized user information to the three major credit bureaus.
- Open a secured credit card account. If becoming an authorized user is not an option, getting a secured credit card while young is a good option. Secured credit cards require a deposit, in some cases as little as $200, and that deposit will become your line of credit. Proof of income is usually required, as well as a checking or savings account. If you make sure to pay off the balance in full each month, you will begin to build credit and soon you will be able to apply for a regular credit card.
- Take out a student loan. While we don’t recommend a student loan if you don’t actually need one, opening one will contribute positively to your credit history, and when you start making payments, that will positively impact your credit score. Federal student loans are a good option, as well as private loans, although these usually require a co-signer.
Building Credit As an Adult
If you are an adult and have no credit history or want to improve your current credit, follow these tips:
- Pay your bills on time. Payment history is a huge factor in your credit score, so set up automatic payments whenever possible to avoid any late payments.
- Apply for a credit builder loan. A credit builder loan is different from a regular loan, because the money that you borrow goes into a savings account, and you don’t have access to it until the end of the loan term. Choose a small amount to borrow so that making on-time payments will not be a challenge. When you are done, you will have boosted your credit and you will have saved up some money.
- Get a retail credit card. Retail credit cards often do not have as strict requirements to extend credit to their customers, so you may have an easier time getting one. Just keep purchases small and pay them off each month.
- Practice good spending habits. This means not spending beyond your means or running up large credit card debts. Set a monthly budget and stick to it.
How to Build Credit Fast
If you are looking for a quick boost to your credit in order to qualify for a mortgage or auto loan, here are some steps you can take:
- Pay your bills on time. We’ve said it before and we will say it again. This is one thing you can always do to boost your credit.
- Ask for an increased credit limit. If you already have a credit card, it can’t hurt to ask for a higher limit. Having a higher credit limit and keeping the balance the same will lower your credit utilization, which you should always keep below 30%.
- Check your credit report. If you find errors on your report, dispute them. Having them removed from your report will increase your score.
- Make payments throughout the month. Small frequent payments help to lower your balances and increase your credit score.
With these simple tips, it won’t be hard to get credit when you have none. Establishing good financial habits and following our expert advice will have you on the way to building your credit in no time.
Sources:
https://www.nerdwallet.com/article/finance/how-to-build-credit
https://www.cnbc.com/select/how-to-build-credit-with-no-credit-history/