How to Build Credit When You Have No Credit History

how to build credit when you have no credit history

Building credit should be one of the first things on your checklist once you become an adult. However, Forbes states that there are over 26 million individuals that are ‘credit invisible.’

Many consider a clean slate or a new beginning to be a good place to start no matter where you are in life. When it comes to your credit score, that might not be the case.

When you are filing for a line, your credit score is one of the first things that lenders will ask for. If you have a completely blank credit history, then it might come off as suspicious or unreliable for some lenders.

The chances of qualifying for a loan when you have no credit history are slim, which could make it difficult for you to acquire assets like a house, a car, or personal loans.

The question goes: how to build credit when you have no credit history? In this article, we’ll be discussing topics such as what a credit score is, its importance, and the difference between having bad credit and no credit.

If you want to know how to build credit when you have no credit history, then read on to know more.

What is a Credit Score?

Credit Scores are an essential part of your financial reputation. It determines how you look in the eyes of potential lenders.

You should strive to build and maintain your reputation by raising your credit score as high as it can go. Remember this: the higher your credit score is, the better you look in transactions.

Credit scores are measured by numbers, ranging from 300 to 850. When you file for a big loan or purchase, lenders will judge your reliability based on your total score.

The scoring will be based on your credit history, which may include records of previous or existing loans, any form of debt, how often you pay, and many other factors.

 

What is a Good Credit Score?

Now that we’ve gone through what a credit score is, let’s move on to what credit score you should be aiming for.

For reference, you can take a look at this list of credit scores and their equivalent value in terms of efficiency.

  • An Excellent credit score should amount to at least 800.
  • A Very Good credit score should amount to at least 740.
  • A Good credit score should amount to at least 670.
  • A Fair credit score should amount to at least 580.

Anything below 579 is considered to be a Bad credit score. If the situation is within your control, try your best to make sure that it never reaches this point.

 

Why Should You Build Your Credit?

At this point, it’s already a given that you need a good credit score to get on the good side of potential lenders. But before that, you need to know how to build credit without a credit history.

Once you’ve built up your score and enhanced it to an optimal level, you can enjoy some benefits that are well worth the effort. Here are a few examples.

 

Having a Good Credit Score Is an Investment for Your Future

Again, let’s emphasize the importance of having a good credit score. Even if you have no credit score, to begin with, it’s best to set your goals early and know what you’re aiming for.

Keep this in mind:

  • You need a credit score of at least 620 or higher to buy your own home.
  • You need a credit score of at least 661 or higher to buy a car.
  • You need a credit score of at least 610 or higher to obtain a personal loan.

It all begins from the moment you start building your credit score. If you know how to build credit with no credit history or better yet, if you know the right steps to take, then you’re one step closer to the asset of your dreams.

 

It’s Easier to Become a Homeowner or Tenant

Whether you are looking to rent a new place or are interested in buying your own home, your credit score should be the first thing you consider before anything else.

Think about it this way: If you are a landlord, would you take the risk and offer your services to someone who had no financial reputation?

Without a credit score, landlords would have no way of knowing how you manage your money. The same goes for lenders offering mortgage loans.

Many landlords and lenders value security and trust above anything else, which is why they prefer to transact with individuals who have a good credit score.

 

It Opens Opportunities for Good Deals

There is no downside to building your credit score. Not only does it help you maintain your reputation, but it also gives you more great opportunities to work.

The higher your credit score is, the more trust that lenders will put in you. This means that they will be more open to negotiations for your transactions as well.

If a lender sees that you have a good score and have no history of offenses or mistakes, then you could obtain benefits such as lower interest rates or higher borrowing capacities.

Having no credit score may give you a higher chance of securing a loan than someone with a bad credit score, but ultimately, those with a clean credit history will get the best of all opportunities.

 

A Bad Credit Score VS No Credit Score: What’s Worse?

Having no credit score already puts you at a disadvantage, but is it worse than having a bad credit score?

While neither of them is technically favorable in the eyes of the lender, which situation gives you a better chance of securing a loan? Let’s go through the differences between the two choices.

Having no credit history means that:

  1. You have no previous transactions to vouch for your reliability.
  2. Lenders might find you unpredictable and risky to transact with,
  3. You will have trouble securing a loan due to a lack of information.

Meanwhile, having a bad credit score means that:

  1. Mistakes from your previous transactions are affecting your reputation.
  2. Lenders will also find you risky, based on your credit history.
  3. You will have trouble securing a loan because of several factors that have affected your credit score.

So which one is worse? Having a bad credit score puts you in a more difficult situation.

Although having no credit history is not preferred, it still gives you the upper hand over those with low credit scores, regardless of the reason behind their poor score.

After you learn how to build credit with no credit history, the next thing you should be focusing on is how to maintain your credit score.

You should be safe as long as you know what to do and what not to do. We’ll expand more on that later on.

 

How To Build Credit with No Credit History

You’ve been informed of the advantages of building a credit score, along with its differences from having a bad credit score. Now it’s finally time to learn how to build credit with no credit history.

Here is what you need to do.

 

Double Check Your Credit Report

If you are new to the world of credit and loans, then it’s best to double-check your credit reports. It may not seem like It but some of the purchases you make in your daily life can contribute to your credit history.

Your student loans could be one of them. Although it’s better to start smaller when you’re building credit for your credit history, having an existing loan on your credit report could save you a lot of trouble.

As long as you pay your debts and loans on time, then there shouldn’t be any issues. You can check your credit report by accessing AnnualCreditReport, com.

However, you can only check your credit score via paid services through companies or a free credit score calculator online.

 

Obtain a Card from Your Bank

One of the easiest ways to build your credit score is to get a card from your bank. They will likely provide you with a Secured Credit Card.

Secured credit cards are ideal for those with bad credit scores or no credit history at all. This is because users can only spend the amount of money they deposit on the card.

It’s a great way to get started in building your credit history. First of all, the low spending capacity makes it easier to manage your budget and plan your expenses.

Having a secured credit card could be considered an introduction to building your credit. After all, it’s always best to start small and work your way up to bigger purchases.

 

Become an Authorized User of Someone Else’s Card

If you feel that you aren’t ready to have your card or cannot obtain one at the moment, then you can try applying as an Authorized User.

Becoming an Authorized User means that you gain access to a close friend or family member’s card instead of applying for your own. You can start building credit with the help of someone you trust, who also trusts you in return.

Just make sure that the person you are sharing the card with has a good credit score or credit history. Otherwise, it defeats the purpose of becoming an Authorized User.

Before anything else, keep in mind that becoming an Authorized User is a two-way street.

Pick someone responsible for handling their credit card and paying off their debts in time. In turn, you must do the same for them.

 

Invest in Subscription Services or Pay for Utilities

You can build your credit in ways that can always benefit you, whether it’s through convenience or enjoyment.

 

Monthly services such as paid streaming services like Hulu or Netflix can be considered as part of your credit history. With this, you’d be investing in something you can enjoy.

 

Some companies also allow you to pay for your bills and utilities through credit, which contributes to your score and history.

Keep in mind that this method may include extra charges, so it’s best to thoroughly check the requirements and collaborate closely with your provider to manage your expenses.

 

How to Avoid a Bad Credit Score

Building credit is only the beginning. With all things discussed before, you should know by now how important it is to keep your credit score at an optimal level.

That being said, here are a few simple ways that can help you keep you maintain an excellent credit score.

  • Manage Your Expenses Wisely - It can be tempting to buy anything and everything you want once you get your new card. However, try to resist. It’s not a crime to treat yourself with a gift every once in a while, but indulging too much in your wants could leave no more room in your budget for your needs. This may cause you to fall behind on payments. Take care of your necessities first, such as food, medicine, or other basic needs. Whether it’s for your rent or student loans, settling the payment for your debts should be one of your top priorities.
  • Take it Slow and Minimize Your Card Usage - Once you obtain your first credit card, stick with it. You don’t need to make big purchases or apply for many cards right away. What’s important is that you are building your credit slowly but surely. Handling multiple cards at once can be difficult unless you are extremely good at monitoring your expenses. Own up to your responsibilities as a cardholder and never take on more than you can handle. Otherwise, it might do more harm than good in the long run.

 

Build Your Credit with 121 Financial Credit Union!

Now that you know how to build credit with no credit history, it’s time to move forward. When it comes to your financial needs, you need a reliable and trustworthy company to walk you through the process.

We are confident that we can provide the quality of service that you deserve through our services. Work your way towards a reliable credit history by working with us today! We are happy to help.

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