Click here for Part 1 of the series.
How to Build Credit if You Don’t Have Credit History
There are several ways to build credit history when you don’t have any.
- Apply for a credit card.
- The card you apply for will depend on your credit history. Cards are available for people with good credit, bad credit, and no credit. An easy way to build credit with little or no history is to get a store card or gas card that you can make small, frequent purchases with. Pay these small purchases off on time and your credit score will start going up.
- Consider a secured credit card.
- This is a good option for those with no credit or bad credit. A secured card works like a normal credit card except it requires an up-front security deposit, which the card issuer holds as collateral. If you default on your card payments, the issuer will use your security deposit to pay off the debt. Again, making small and frequent purchases that you pay off on time will help you build your credit.
- Consider installment loans.
- Installment loans are loans that you pay back monthly. Car loans, student loans, mortgages, and personal loans are all examples of an installment loan. There are also specific loan programs called credit-builder loans that are designed to help you build your credit. Make your payments on time to improve your credit score.
- Become an authorized user on someone else’s account.
- This is a good option for people that have no credit history or are having difficulty qualifying for a credit card. As an authorized user, you are added to someone else’s existing credit account and given your own card. All on-time payments made on the account will help build your credit. Gas or store cards are great examples of how you can build credit by becoming an authorized user, because you can make small purchases more frequently.
- Track your credit utilization ratio.
- This is the ratio of balances to credit limits. For example, if you have a credit card with a $2,000 limit, and you currently owe $1,000, you would be at 50% of your credit limit. A good rule of thumb is to keep your balances at or below 30% of your limit, otherwise it might negatively impact your credit score. Requesting credit limit increases is a good way to keep your credit utilization ratio low.
- Add your monthly bills to your credit report.
- Use tools like Experian Boost or Experian RentBureau to add records for phone and streaming service bills, utility bills, and rent payments to your credit report. This is useful for those with little or no credit history.
It is also important to monitor the contents of your credit report and dispute any errors that show up. You can dispute errors on your credit report by contacting the bureau that issued the report.
Tips to Increase Your Credit Score
- Make your minimum payments on time. Make more than your minimum payment if you can. You can use automatic payment options to help you pay on time.
- Reduce your overall debt.
- Do not use one credit account to pay off another.
- Keep your credit utilization ratio low.
- If you have poor credit, consider hiring a credit repair company.
What Decreases Your Credit Score?
- Late and missed payments.
- A high credit utilization ratio.
- Requesting too many new lines of credit.
- Having too few types of credit. Having only one type of credit, such as a credit card, may negatively impact your credit score. You can improve your score by adding other types of credit, such as installment loans.
Your credit score impacts your ability to obtain additional lines of credit, such as loans or bonds.
