Build Credit When You Have None: Know 3 Things That Actually Work
In this post I will share with you 3 things that actually work when you’re building your credit from scratch. Whether you’re just starting out, or rebuilding your credit, these 3 simple strategies will help you achieve your credit goals fast.
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If you’re just starting out and you don’t have any credit history to speak of, building your credit score could seem daunting.
It may take several months, but with persistence, you can build up your credit score even if you’re starting from zero. Here’s some tips to help you get started.
Build Credit With a Secured Credit Card
A secured credit card is a type of credit card that you make a deposit to, normally of about $200, and only allows you to spend the funds you deposited.
As you use your card, and then pay it on time the following month, this pattern will begin to reflect on your credit history.
It will show as good use of your available credit, helping you to build your credit score. One of the best credit builder credit card out there is the OpenSky Card. The OpenSky card helps you build your credit fast and doesn’t require a credit check.
Here’s some best practices when using a secured credit card:
- Don’t max out the card. Keep your utilization at about 20% or less of the available credit limit you have on the card.
- Do use your card each month. While maxing out the card is a definite no-no, if you don’t use the card each month, there will be no credit history to report. Be sure to make at least one small purchase a month.
- Do pay the balance in full each month instead of just making minimum payments. Think of your secured card as a “first impression”. You want to show future creditors that you will use any credit they may extend to you wisely.
By following these best practices you will ensure that you build good credit from the start instead of having to fix it later.
For a list of other secured credit cards that may fit your needs, check out this comparison list.
There are also some unsecured credit cards you may qualify for (check out a list here).
However, be aware that these normally carry a high interest rate, so be sure to follow the best practices outlined above so you don’t get into trouble trying to pay off the principal plus an outrageous interest charge in the future.
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Become an Authorized User
Although more difficult, you may also consider becoming an authorized user on someone else’s credit card.
In this scenario, you technically have access to that person’s credit card but have no responsibility for the payments.
If it provides that person some assurance that you won’t ruin their credit, you may want to cut up the card you receive for their account.
That way they can be sure you won’t use it without their permission.
What Does Being an Authorized User Entail?
In most credit score models, that person’s credit history for the particular card you’re authorized to use would be counted towards your credit, thus building up your credit history.
However, if the main account holder misses a payment or maxes out the card, it will also count against your credit.
Be sure to choose carefully who you become an authorized user for, as their choices when it comes to their credit will affect you, either positively or negatively.
Want to learn more about how your credit score is calculated and how you can increase it quickly? Download our FREE Quick Start Guide today.
Another important issue to consider as you begin to build your credit is security.
When I started applying for various cards and lines of credit, the last thing that went through my mind was what would happen to my personal information.
I was careless.
I would start filling out an application on paper and never send it in.
It would eventually end up in the trash with most of my information on there.
Of course, nowadays, we mostly provide our information online rather than on paper. Either way, take appropriate steps to safeguard your personal and financial information.
Being a victim of identity theft can cost you thousands of dollars and many years to fix.
In my case, my information did get stolen, twice!
Credit cards were opened in my name, and it was a headache to correct this incorrect information.
To protect your information on paper, consider investing in a personal shredder or a privacy tape, and sign up for online monitoring through myFICO to protect your online activity.
By having identity monitoring constantly protecting your identity, you can have peace of mind knowing that you’re always covered against identity theft. To sign up, check out myFICO here.
Get a Department Store Card
If you’ve ever been to a department store, you’ve probably been asked multiple times during the same transaction if you’d like to sign up for the store’s credit card to receive 20% on that day’s purchase.
Why are department stores so eager to give you a discount if you sign up?
Because they know that statistically speaking, they’ll be able to make more money off of the customers who have the card than those who don’t.
It builds loyalty to their brand, not to mention the interest and late fees they are banking on charging you.
To them, it’s a calculated risk, and it’s a risk worth taking.
This is why department stores are a good way to start off your credit history. They are often eager to extend credit to anyone who asks for it.
Now that you know the store’s ulterior motives though, be sure to not fall prey to their tactics.
Only shop at their store if you were going to anyway, and not just because they sent you another irresistible coupon.
Additionally, be sure to pay the card in full each month, and on time. That way, you avoid any fees, and can still take advantage of any loyal customer promotion they may be offering you.
Bonus Tip: Boost Your Credit Score With Experian
If you’ve ever wished you could have your utilities or other payments count towards your credit score, you’re in luck!
Experian recently launched Experian BoostTM to help you do just that. With this exciting new program, you can instantly improve your credit score in a matter of minutes.
All you need to do is give Experian a view into the bank account you usually pay your bills with. Their system will automatically scan for qualifying payments. This can include your phone, utilities or streaming services.
You then get to choose which positive payment history you’d like to add to your credit file.
Once you do this, those monthly payments will automatically be reflected in your Experian credit file!
This is such an easy process to do and can potentially boost your credit score IMMEDIATELY by up to 13 points!
The boost may not work for everyone, and some may not see improved scores, but you have nothing to lose and up to 13 points to gain by trying it 🙂
Frequently Asked Questions
That’s it! By following the simple strategies I shared with you today you can start building (or rebuilding) your credit in no time.
Speaking of time, I wanted to address a few questions that normally pop up about building credit when you have none.
How Long Does It Take To Build Credit If You Don’t Have Any?
Building credit takes time, especially when you have none. You should expect to see an improvement in your credit anywhere between three to six months after you start reporting activity regularly.
Although that may seem like an eternity, once you start reporting activity on a regular basis your credit file will begin updating each month.
This is why it’s important to do things right from the beginning! Make sure to follow the best practices I’ve outlined here so you can have excellent credit fast.
What Credit Score Do You Start With?
Although many people believe that we all start with a credit score of zero, there’s actually no such thing.
When you don’t have a credit history established, you simply don’t have a credit score.
If you try to apply for some kind of credit at this stage, chances are the lender will tell you they either didn’t find a credit profile for you or they did but it was blank.
What Credit Score Do You Need To Buy a House?
There are many different types of home loans out there for different buyers. However, as a rule of thumb, you will need at least a 620 credit score to qualify for most conventional loans.
If you’re applying for a First Time Home Buyer loan, a VA loan or some other special program, your credit score requirement may be lower, with many of these programs requiring only a score of 580.
Final Thoughts
Regardless of which method you choose to build up your credit, be sure to read the fine print.
Become well acquainted with the terms and conditions of any account you may have access to, so you can build your credit right from the beginning.
As the saying goes, it’s better to prevent than to cure.
How long did it take you to build your credit? Did you think it was easy? Did you encounter any issues? Share in the comments below!
