How to Start Building Credit With No Credit

TL;DR: Short on time? Watch the video below to learn how to start building credit with no credit history.

When it comes to establishing a solid credit history, everyone has to start somewhere. But what if you have no credit at all? Building credit from scratch may seem like a daunting task, but rest assured, it’s completely possible. In this article, we will guide you through the steps you need to take to start building credit with no credit. So if you’re ready to embark on the journey to a strong credit profile, keep reading to learn how.

Why Do You Need Good Credit?

Having good credit is essential for many aspects of your financial life. It plays a crucial role in determining your eligibility for loans, cards, and other credit accounts. Lenders use your credit history to assess your creditworthiness and decide whether to approve your applications. Additionally, landlords, insurance companies, and even potential employers may also review your credit when making decisions.

Without a credit history, it can be challenging to obtain credit or secure favorable terms. However, by taking proactive steps to build credit from scratch, you can pave the way towards a strong credit profile and open up numerous opportunities.

What Credit Score Do You Start With?

When you have no credit history, you essentially start with a blank slate. This means that you don’t have a credit score initially. However, as you begin building credit by opening credit accounts, a score will be generated based on your financial activities.

It’s important to note that there are different types of scoring systems, with the FICO® Score being the most commonly used by lenders. This score ranges from 300 to 850, with a higher score indicating lower credit risk. As you begin building your credit, your score will start to increase over time.

6 Ways to Build New Credit

Apply for a Secured Credit Card

One of the most common ways to start building credit with no credit is by applying for a securedcard. A secured card requires a security deposit that then becomes your credit limit. This deposit acts as collateral for the card and minimizes the risk for the card issuer. By using these cards responsibly, making payments on-time, and keeping your balances low, you can gradually build a positive credit history.

When choosing a secured card, it’s important to look for one with low fees and a reporting feature to bureaus. This ensures that your responsible credit behavior is reported and reflected in your credit history. Over time, as you consistently demonstrate good credit habits, you may become eligible for an unsecured credit card with a higher spending limit.

Become an Authorized User

Another option is becoming an authorized user on someone else’s account. If you have a family member or close friend with good credit, they may be willing to add you on their account.

The advantage of being an authorized user is that the positive payment history and credit utilization ratio of the primary cardholder will be reported on your credit report as well. This can help you establish a credit history and improve your credit score. However, it’s important to choose someone who is responsible with their spending and makes payments on time.

Apply for a Store Card

Many retail stores offer their own charge cards that are typically easier to qualify for, even with no credit history. These store cards often come with lower credit limits and higher interest rates compared to traditional credit cards, but they can still serve as a stepping stone towards building credit.

Using a store card responsibly by making on-time payments and keeping balances low can demonstrate your ability to manage credit. It’s important to note that while store cards can help you establish credit, they may have limited acceptance beyond the specific retailer. Therefore, it’s essential to use them strategically and not rely solely on store cards for all your credit needs.

Look into Credit Builder Loans

Credit builder loans like CreditStrong offers are specifically designed to help individuals with no credit history start building their credit profile. These personal loans typically work by having you make monthly payments to a lender, and these payments are reported to the major credit bureaus. However, instead of receiving the loan amount upfront, you make the payments first, and once the loan is paid off, you receive the funds.

While these loans may require a deposit or have higher interest rates, they can be an effective way to establish a positive history. Just like with any other form of credit, it’s crucial to make timely payments and avoid defaulting on the loan. This will show lenders that you are responsible and can be trusted with credit.

It’s important to note that credit builder loans may not be available at all financial institutions, so you may need to do some research to find local banks or credit unions that offer these types of credit. Additionally, be cautious of predatory lenders who may take advantage of individuals with no credit history by charging exorbitant fees or high interest rates.

Ask Someone to Co-sign

If you have a close family member or friend with a good credit history, you may ask them to co-sign on a loan or credit application. When someone co-signs for you, they are essentially vouching for your creditworthiness and agreeing to take responsibility for the debt if you default on payments.

Having a co-signer can help you secure credit that you may not be able to obtain on your own. However, it’s important to approach this option with caution. Co-signing is a significant responsibility for the co-signer, as any missed payments or defaults will also negatively affect their credit. Therefore, it’s crucial to have open and honest communication with your co-signer and ensure that you are both on the same page regarding the terms of the credit agreement.

Student Accounts

If you are a student or planning to attend college, you may qualify for student focused accounts which can help you build credit as well. Student loans are typically easier to obtain with little to no credit history, and by making timely payments, you can begin establishing a positive credit history.

Similarly, some lenders offer student credit cards specifically designed for college students. These cards often have lower credit limits and may require a co-signer, such as a parent or guardian. Need more info on How to start building credit at 18 or How to build credit as a college student? We’ve got you covered!

3 Strategies to Utilize Existing Accounts

Have Rental Payments Reported

One often overlooked way to start boost credit is to have your rental payments reported as well. By having your rental payments reported, you can demonstrate a positive payment history, which is an important factor in building credit.

Many landlords and property management companies do not report rental payments by default, but you can request this service from them. Another way is to use a company such as Self or Kikoff who assist in reporting rent payments.

Get credit for the bills you pay

Are you getting credit for the other bills you pay such as utility payments? Many utility companies, such as electricity, gas, water, and phone providers, have the option to report your on-time payments to the credit bureaus. This means that if you consistently pay your bills on time, it can positively impact your credit score.

To take advantage of this option, simply contact your utility providers and ask if they report payment history to the credit bureaus. If they do, ensure that your payment information is being reported accurately. Keep in mind that not all utility companies offer this service, but it’s worth checking with them to see if they can help you build credit. You can also check out Experian Boost or even Grow Credit; who also reports subscriptions!

Make On-Time Payments Every Month

The most important factor in building and maintaining good credit is making on-time payments to your credit card companies. By consistently paying your bills on time, you demonstrate your ability to handle credit responsibly. In addition, it may increase your chances of future approval.

It Takes Time

Building up your credit report and credit score may seem challenging, but it is definitely possible. By following the steps outlined above, you can begin establishing a positive credit history and laying the foundation for a strong credit rating.

Keep in mind that things take time and consistency. Be patient and stay focused on your goals. As you continue to practice responsible credit habits, you will gradually build a solid credit profile that opens up doors to future financial opportunities.

So, don’t wait any longer. Start building your credit today and set yourself up for a brighter financial future. As you begin building credit, periodically check your credit reports and scores or enroll in a credit monitoring system. Dovly, an AI credit engine can help you monitor your credit report and score as well as assist you in working towards financial wellness. Try it risk-free with our free membership tier. Get in touch with Dovly today!