Having no credit means you have bad credit. Not having credit history will make it hard to get approval for loans. A credit score is basically a way for lenders to gauge how responsible you are with your money and if it would be wise for them to give you the loan. If you don’t have any history, they may be hesitant to grant you the loan. Luckily there are a few easy ways to get started on building up that credit history and maintaining good habits to get that score up and stay up.
Apply for a credit card
Applying for a credit card with a low spending limit allows you to start building credit history. The low spending limit is like training wheels, not allowing you to rack up a large amount of debt you will have a hard time paying off at the end of the month. Having a shiny piece of plastic to swipe instead of being able to watch the money physically leave your wallet can make budgeting a little more challenging. But as you consistently pay off your balance it will be more realistic seeing the number leave your account. As you pay off your balance each month your credit limit will gradually be increased, allowing you to spend a little bit more. This does not mean that you have to spend more but it is there if you ever need it. Having your limit increased also improves your credit utilization ratio which is a big factor in your credit score. If you don’t have the best track record with credit cards, you can opt for a secured credit card. These are normally tied to a saving account, like a debit card and the limit is restricted to what you have in that savings account. This way you are still able to build positive payment history and the money is immediately withdrawn from the account. You then don’t have to worry about forgetting to submit your payment in time.
Becoming an authorized user
If you find it difficult to get approved for a credit card, if you have someone close to you who is willing to help you out, you can have them make you an authorized user on their account. You can also open a joint account with someone that has a good history with their credit for the same effect. A lot of parents do this to give their kids a head start to gaining credit. It is important that the person giving access to the account has good credit themselves or else it will negatively affect the authorized user. Also if the authorized user fails to pay their balance on the account, the original card holder will then be responsible for the payment or else all who are on the account will have their credit negatively affected.
Pay your loans on time
If you already have some credit established you can build the base up even further by making sure you are making your payments on time. This helps to prove your positive payment history while also slowly but surely eliminates your debt which is great for credit.
Your credit score is very important to have when making big purchases like a house or a car. Showing you are responsible and will be trusted to pay back the money you are lent is what a credit score is all about. You have to take small steps in establishing your credit before you will be able to make bigger strides. The key is to be patient and remain consistent in your efforts.