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No Credit History? No Problem. Here Are 6 Ways to Build Your Credit From Scratch

October 28, 2015
by Jamie Cattanach
Staff Writer

You need good credit history to be approved for new credit accounts, but you need active accounts to build good credit history. Sound like a familiar dilemma?

This Catch-22 is common, whether you’re new to the world of credit or your positive accounts have been idle too long for them to appear on credit reports.

Regardless of the reason, if your credit file is thin or non-existent, here are some of the best ways to build your credit history.

1. Start Slow

Building credit history is like building muscle: You have to be strong enough to walk before you can run.

If you try to apply for a bunch of credit cards at the same time right off the bat, you don’t just risk rejection. Your credit score might actually suffer, because every time you apply, your would-be creditor makes a hard inquiry on your report.

Since overdoing it at the start is a rookie mistake, multiple hard credit inquiries within a short time can negatively impact your score. Plus, it’s easy to get in over your head with credit card debt if you’re charging purchases to multiple cards at the same time.

Starting slow will encourage you not only to be a responsible credit user, but also to carefully choose which cards you apply for — and many have great benefits.

Here are some of the best cash-back credit cards to apply for once your credit is stronger. Prefer to travel? Here’s how to choose the right travel rewards credit cards for you.

2. Piggyback (Responsibly!)

If you have a trustworthy person with great credit in your life, you could ask to become an authorized user of one of their accounts. (If you’re young and starting out, a parent’s account is a good option.)

But be careful: If the account holder doesn’t pay the bill, your score could also get hurt. Plus, you might not be able to remove yourself from the account, tying you to a negative credit impactor.

Ask the card issuer exactly what will be reflected in your history. Also, make sure not to go wild with someone else’s credit card!

3. Try a Secured Card

A secured credit card is similar to a debit card — you put down a collateral cash deposit and can use that amount in credit.

However, unlike a debit card, secured cards — at least, good ones — report your payment, balance and other relevant behavior to credit bureaus. The creditor might reward your good standing with a credit line increase, and you’ll build some credit history.

You can also  check with your credit union or bank about getting one of their credit cards, but shop around — some charge exorbitant fees or, worst of all, don’t report to the major credit bureaus.

4. Ask Your Bank for a Loan

Banks and other small private lenders might offer you a low-risk loan, even if you have little or no credit.

For instance, you could purchase a CD from your bank using one of these loans. You wouldn’t own the account until you paid it off, but once you did, you’d have some savings and a credit history boost, just for the price of the fees and interest on the loan.

5. Talk to Your Lenders

It always pays to ask questions.

To set up an account, some lenders might be willing to review nontraditional data, like your rental history, or utility or installment purchase plan payments. You can then use your new account to begin to build a more “traditional” credit file.

6. Keep Using Your Plastic

Most of us know bad credit information falls off reports after seven years.

But did you know good information falls off after 10 years?

Even consumers with good credit history are at risk of losing it if they pay off all of their accounts and don’t touch them again.

Instead of celebrating by cutting up your cards once you pay them off, use them — but keep paying them off.

You could even set up autopay on each card for a small monthly bill, like Netflix or your cell phone plan. Then, pay off your cards in their entirety each month.

You’ll reap the credit rewards and keep your history active — without paying a cent of interest!

Your Turn: What tips do you have for building and maintaining good credit history?

Jamie Cattanach is junior writer at The Penny Hoarder and a native Floridian. She’s passionate about learning, literature, chocolate and finding ways to live the good life as cost-effectively as possible.

by Jamie Cattanach
Contributor for The Penny Hoarder

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