How to Build Your Credit When You Have None
Before you can qualify for some of the best credit cards, you have to show that you already have good credit.
But, how do you establish credit without a credit card? Is establishing good credit even worth all the trouble?
Why You Need Good Credit
Having a good credit history makes your life easier in several different ways. First, while it is best to keep your debt levels low, at some point you will need a loan to buy a car or a house. Having good credit makes getting a big loan cheaper and easier.
Second, you may find yourself in an emergency situation where you need cash fast. If you have good credit, it will be much easier to secure a loan or a credit card. Some employers even look at your credit history before extending a job offer.
The earlier you start building a positive credit history the better off you will be.
If you are having a hard time getting a credit card, you may need to try and apply for a different type of card. Student credit cards and credit cards for people with no credit or bad credit are usually easier to get. These will have higher interest rates and lower limits, but they are a good place to start.
You could also try applying for a store credit card. These are often easier to get than bank-issued credit cards.
If you are rebuilding your credit you may need to start with a secured credit card. A secured credit card requires you make an upfront cash deposit as security for the card or to have a co-signor.
Another option is to get a small car loan. Lenders issuing car loans are often more focused on your current income and work history and less focused on your credit history.
You will need to show that you can use credit wisely. This means paying your bills on time and keeping your balances well below your limits. Because you are just starting out, it is critical that you demonstrate that you are a good credit risk.
It often takes six months before your credit actions will show up on your credit report and be reflected in your credit scores. When you are first building your credit you will need to be patient.
How Lenders Look at You
As you build your credit history, you are leaving a trail that future lenders will be looking at. Credit card companies, car loan companies, and mortgage companies are all looking at the same things when deciding if they should loan you money or not.
All lenders want to make sure that you going to be able to pay back the amount you borrowed, plus interest, on time.
They want to make sure you are a good credit risk. When considering your application for credit, lenders look at:
- Your payment history—they want to see that you pay your bills on time
- Your debt level—if you have too much debt already they worry you won’t pay them back
- Your income level—are you making enough money to afford all of your bills?
- Debt to income ratio—if you make a lot of money, but you also have a lot of debt, you may be a poor credit risk
Building good credit is all about demonstrating that you are responsible. You don’t have to be perfect, but you should consistently demonstrate that you pay off your debts on time.