You hear all this stuff about how credit is bad, but in today’s world it’s difficult to get the finer things in life (like a nice car and a big house) without credit.
In order to get the best interest rates on a loan you’ll need to have good credit. But what if you’re young and have no credit, how are you supposed to get it in the first place?
It’s sort of like when employer after employer requires you to have experience. How are you supposed to get experience if no one will hire you in the first place?
Here in this post I’ll describe how someone with no credit can begin to build their credit history. These tips also apply to those who are coming out of a bankruptcy or foreclosure and need to rebuild their credit.
Here are 5 ways you can obtain credit when you don’t have any.
Obtain A Co-Signer
When you can’t qualify for a loan, a co-signer with good credit can definitely help you. With a co-signer, their credit score is used to help you qualify and get you a good rate.
The co-signer is financially responsible for paying back the debt. Therein lies an issue. If you don’t pay back the loan you are going to negatively affect the credit of this person. Thus, it can hurt your relationship with this person who offered their credit up for you.
If a family member (or friend) with good credit has a credit card, they can add you as an authorized user on their account. Most credit cards report authorized users to the three major credit bureaus, Experian, Equifax and TransUnion.
If the family member is concerned you will rack up credit card debt and not pay your bill, you can tell them you don’t even want the credit card. You only want to be listed as an authorized user to help build (or rebuild) your credit.
Get A Secured Credit Card
When you can’t qualify for a regular credit card, you can get an introduction into the world of credit with a secured credit card.
Here’s how they work. You initially make a deposit into the account, let’s say $500. This becomes your credit limit. The good news is that you can’t get into debt since you cannot spend more than what you have already deposited.
This sounds a lot like a debit card, but the difference here is that the secured credit card will show up on your credit report and help build your credit if you don’t have any. To build your credit profile with a secured credit card, ensure the credit card company reports usage to the credit bureaus.
With some credit card companies, they can even convert your secured credit over to a regular one after you have shown a history of using the card responsibly.
You’ll want to watch your credit utilization rate. If you have a limit of $500, don’t charge more than $100 on it. Then be sure to pay it off each month on time.
Get A Store Credit Card
A store credit card is easier to obtain than a regular credit card. The downside here is that store credit cards usually come with a higher interest rate, have excessive yearly fees and are exclusive to the store which means they can’t be used anywhere else.
Getting a store credit card is a bit risky. Often times people are blinded by an introductory offer like 20% off for the entire day. But you could be doing more harm than good if you max out the card and then get hit with all their fees.
Ask Your Bank For A Loan
It’s hard to get a loan when you don’t have credit history. But your best chance of getting a loan is going to be through your bank. If you have a checking account and have used it responsibly for years, you may be able to qualify for a personal loan from your bank.
Even if it’s a small loan at a high interest they’re offering, you should take it. Having a diverse credit profile is important. A great credit profile has a mixture of credit cards, personal loans, student loans, car loans and a mortgage. By having (and completely paying off) a personal loan, you are helping improve your credit score and will help beef up your credit report.