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How to Build Credit When You Have None

How to Build Credit When You Have None

Kim Pinnelli

by Kim Pinnelli
Senior Contributing Writer

April 29, 2021
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How to Build Credit When You Have None

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If it takes credit to get credit, how will you ever start? It may feel impossible to start building credit when you have none, but it’s not as hard as you think. Once you build your score, you may be able to buy a car, apply for a credit card or even buy a home.

Here’s how to start.

Apply for a Secured Credit Card

Many credit card companies will approve borrowers with no credit for a secured credit card. The main feature of a secured card is the security deposit you must put down, which serves as your credit line. For example, if you make a $200 deposit, you get a $200 credit line.

You can use secured credit cards just like a traditional credit card. You charge it and have a grace period to pay the balance off before interest accrues. You must make at least the minimum payment, but paying the full balance is always recommended.

Most credit card issuers convert a secured credit card to an unsecured credit card after 6 to 12 months of proper use. If your credit card company doesn’t offer that benefit, you can apply for an unsecured card with 6 to 12 months of positive payment history reported on your credit history.

Become an Authorized User

When you’re learning how to build credit when you have none, consider becoming an authorized user. As an authorized user, you tack onto a family member or friend’s credit card account.

Authorized users have no liability for the credit card debt, so you don’t have to worry about becoming liable for someone else’s debt. But, if your friend or family member has good credit and good payment habits, you’ll benefit from the good credit.

Before asking to be an authorized user, make sure the credit card company they use reports authorized users to the credit bureaus. Also, make sure you have a payment plan in place should you use the credit card, so you don’t leave your debt on someone else’s shoulders.

Take Out A Credit Builder Loan

The name says it all – a credit builder loan helps you build credit. While it’s called a ‘loan,’ it’s not a loan in the traditional sense of the word. You don’t receive the loan proceeds when you take out the loan. Instead, the lender holds the money in an interest-bearing account.

You make payments like you would on a regular loan, and the lender reports your payment history to the credit bureaus to help you build credit. At the end of the term, the lender releases the money to you, and you have an established credit history. Some newer options include Self or Chime.

How to Build Credit When you Have None – Other Methods to Try

Apply for a Store Credit Card

Most stores offer store-brand credit cards, such as Target's RedCard, and don’t require a perfect credit history (or any credit). They’ll usually offer low credit lines of a couple hundred dollars, but if you use it wisely, it will help you build credit.

Get Credit for Utilities and Streaming Services

If you pay your bills on time, services like Experian Boost can provide an easy win. They report your payment history for things that credit bureaus don’t normally hear about, such as your electric bill, cell phone bill, or Netflix subscription.

You just connect your Experian Boost account to your bank account and Experian tracks your payments. If you make them on time, they’ll help you establish a credit score. Experian can also help you check your credit score to keep tabs on how you're doing.

Get Credit for your Rent Payments

Few landlords report rent payments to the credit bureaus, but if they did it would help you build credit. If your landlord won’t report your rent payments, consider paying for a service like Rent Reporters or Credit Rent Boost to do it for you. This only works if you pay your rent on time.

Tips to Build your Credit Score

The above tips help you build credit, but you must have good payment habits to build a good credit score. Here are the top ways to ensure your credit habits create the score you want.

Make your payments on time.

Your payment history is the largest part of your credit score. One 30-day late payment can ruin your efforts to build a good credit history. If you miss a due date, catch it before it’s 30 days late.

Use your credit responsibly.

You’ll build good credit by using your credit line carefully, not charging over 30% of your credit line at any one time. If you do use your credit card and charge over 30%, pay it off or down well before the due date to avoid hurting your credit score.

Don’t apply for too many cards or loans at once.

Take it easy when applying for new credit. One new card for 6 – 12 months is enough. Establish a good credit history with the new card, and then focus on other forms of credit.

Go slow

You won’t build a credit score overnight. Take your time, and do it right. One good credit line is much better than several bad credit lines. You’ll build a stronger credit history and have more chances for other credit opportunities.

Build Credit Responsibly

It may feel like it takes forever or like you’ll never build a credit score when you have none, but it will happen, have patience.

Choose a method from above and focus on it for a few months. See how it helps your credit score. Many banks and credit card companies offer free credit monitoring including your estimated credit score. Watch how your score performs before taking further steps because even one wrong move could derail your efforts.

Above all else, learning how to build credit when you have none takes time. You need the credit history consisting of at least a few months of good credit habits to establish yourself.

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