No Credit History? No Problem: 7 Ways to Build Your Credit From Scratch
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 (for free, of course) on a site like Credit Sesame, 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 because, after all, 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.
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.
7. Keep Tabs on Your Credit Score
Once you become a “real person” with a credit score, you’ll want to keep tabs on that score. The best way to do this is through a free service. (No, you shouldn’t have to pay to see your score).
We use Credit Sesame. It’ll reveal your score as well as walk you through steps to keep hiking that number up, which will help you in the long run.
You’ll reap the credit rewards and keep your history active — without paying a cent of interest!
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.