When I graduated from college, apartment shopping was a nightmare. I had a good job, a decent entry-level salary and I was only looking for a small studio, yet I couldn’t get approved on my own. Because I had been starkly anti-debt and never had a credit card or car loan, I had something worse than a low credit score--I had no credit at all.
It took a long time for me to build my credit history, and in the meantime, I had to pay hundreds of dollars in extra fees and deposits to make up for my credit. And I’m not alone; one in ten Americans--or 26 million people nationwide--are “credit invisible”.
Your Credit History
Your credit history--and your credit score--is a profile of your finances. It lists all of your loans, credit cards and other forms of debt. It also shows if you ever missed a payment or were late with a bill. Lenders and other entities, such as landlords, look at your credit history to decide whether or not you’re reliable.
Having poor credit or no credit history can reduce your chances of getting approved for a loan or even securing an apartment. If you do find someone willing to work with you, they may require additional security deposits or charge you higher interest to compensate for the risk they’re taking lending to you.
Improving your Credit
But if your credit is less than optimal, or simply doesn’t exist, you’re not stuck that way forever. You can improve your credit by taking concrete steps. And the earlier you start, the better.
Below are 6 strategies you can use to improve your credit history:
1. Open a bank account
If you normally only handle cash, it may be time to open a bank account. Banks do not care about credit histories or credit scores when it comes to savings and checking accounts, so opening an account is a good first step.
Banks do not report accounts to the credit bureaus, but lenders may look at your financial accounts when considering your application. And once you have a bank account, it may be easier to get a loan or credit card through your bank.
2. Sign up for a secured credit card
- Credit Recommended:
- Limited, Bad
- Fraud Coverage
- You're covered by $0 Fraud Liability if your card is ever lost or stolen
- Minimum Deposit
- $49, $99 or $200
- Purchase Grace Period
- 25 days
- Balance Transfer Fee
- Annual Fee
- Foreign Trans Fee
- No annual fee
- Unlike a prepaid card, there is regular reporting to the 3 major credit bureaus
- Accepted at millions of locations worldwide
- Make the minimum required security deposit and you'll get an initial credit line of $200. Plus, deposit more money before your account opens to get a higher credit line
- Access to an authorized bank account is required to make your $49, $99 or $200 refundable security deposit
- Be automatically considered for a higher credit line in as little as 6 months with no additional deposit needed
- We will monitor your account, and as you use it responsibly by doing things like making on-time payments, you may be able to earn back your deposit as a statement credit
- Easily manage your account 24/7 with online access, by phone or using our mobile app
A secured credit card
is basically a credit card with training wheels, and you do not need a credit history to get started. With a secured card, you make a deposit to your credit account. The money you deposit is how much you can spend. For example, if you deposit $500, you can use your credit card to purchase up to $500 worth of goods. Then, you have to make payments before you can use the card again.
Unlike regular credit cards, with a secured card, you’re using your own money. That means you eliminate the risk of running up debt, but you still start building good credit by using the card and making payments.
Secured credit cards do often have fees associated with them, so make sure you understand all of the additional costs before applying for a new card.
3. Become an authorized user
If you have a friend or family member with good credit, you can give your credit history a boost by convincing them to add you as an authorized user to their credit card accounts. As an authorized user, you get access to their credit line and credit history, which can improve your credit significantly.
4. Apply for a store credit card
While store credit cards typically charge high interest rates, their approval requirements are typically lower than regular credit cards. By signing up for a store card, you can establish your credit history with regular payments.
If you get a store card, limit your purchases and pay off the bill right away to avoid paying high interest charges. Making all of your payments on time and limiting your balance will help boost your score.
5. Take out a credit building loan
If you have no credit, one option is taking out a small personal loan. Because you do not have a lengthy credit history, your interest rate will likely be higher. But taking out a loan can help you build your credit and diversify your options, leading to an improved score.
Keep up with your payments on the loan and, if possible, make extra payments to pay off the loan ahead of schedule. That approach will help you save money over time while still improving your credit.
6. Pay all your bills on time
One of the biggest factors affecting your credit is your record of paying bills on time. A single missed payment can damage your credit. The best way to build your credit and your credit score is to make all of your payments on time, including your credit cards, rent and utilities. The easiest way to do so is to set up automatic payments, ensuring you never miss a bill.
Building your Credit
Finding out you have no credit history can be scary and overwhelming. But lacking credit does not mean you’re out of luck permanently. By setting up an action plan, you can establish your credit history, build your credit score, and boost your finances.
For more information about your credit score and factors that affect you, check out the credit basics frequently asked questions.
Editorial Disclaimer: Information in these articles is brought to you by CreditSoup. Banks, issuers, and credit card companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles. The information is accurate to the best of our knowledge when posted; however, all credit card information is presented without warranty. Please check the issuer’s website for the most current information.