No Credit History? No Problem: 7 Ways to Build Your Credit From Scratch
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Did you know it’s possible to not have a credit score?
I’m not talking about a score of zero. I mean a nonexistent credit history.
When you go to check your credit score it’ll tell you there’s not enough information to generate a score.
Others will say you have incorrect information — even after you’ve triple checked it.
The experience can be incredibly frustrating.
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. Keep Tabs on Your Credit Score
Did you know your credit score could be inaccurate? One out of five credit reports have an error, according to a study by the Federal Trade Commission.
To keep a closer eye on your credit, get your credit score and a “credit report card” for free from Credit Sesame. It breaks down exactly what’s on your credit report in layman’s terms, how it affects your score and how to address it.
Because it simplifies everything, you should be able to spot any errors. For instance, if you find an “unpaid” credit card that you know you paid, or a bill in collections you know never existed, you can dispute the incorrect information and raise your credit score.
2. Piggyback (Responsibly!)
If you have a trustworthy person in your life with great credit, 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, don’t 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.
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. 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.
5. 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 balance completely each month.
6. Build Your Savings and Credit at the Same Time
Through a company called Self Lender, you can take out a loan, and it’ll open a certificate of deposit (CD) for you with the money from the loan. You’ll make monthly payments to access the CD. Once you pay off the loan, the money is all yours again.
Your payments are reported to the major credit bureaus, helping you build your credit responsibly. And it helps you build savings, because at the end of the term you’ll receive the sum you’ve been paying into.
Taking out a credit-builder loan gave Kariel Morrison hope. At 18, the single mom was homeless. She had unpaid bills lingering in collections, keeping her credit score in the low 500s. After taking out a loan through Self Lender, her score increased 100 points in a year. Plus, she had more than $500 stashed away at the end of it all.
You can create an account online for free. Once you sign up, you can play with Self Lender’s simple tool to determine your monthly payment and total loan. Find the balance you want, and you can fill out your application online and be approved quickly.
7. 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.
Because 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.
Jamie Cattanach is a contributing writer for 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.