How Can I Build My Credit from No Credit?
If you've never had a loan or credit card, your credit history is likely blank. To begin building your credit, you need to open a line of credit and make on time payments.
Your credit history is used to determine how credit worthy you are. The problem all of us start at is that at some point we've never had credit history. Most creditors fear the unknown, that you may be too high of a risk, and will either turn you away or charge you a high rate.
So how do you get credit, or even a car loan with no credit, if they won't lend to you? It may seem like a cruel circle, but there are ways to jump in and begin building your score up.
Six Tips to Jump Start Your Credit
Credit can be a risky business. That's why it's important to get started on the right foot and be diligent about keeping on top of your credit. Here's a few simple ways to get started.
- Apply for a Secured Credit Card.
A secured credit card is the easiest way to begin your credit journey. You can probably open one with your current bank. It doesn't require a credit score because you provide the limit each month.
For example with such a prepaid credit card, if you pay $200 each month, then your credit limit is $200 each month. You get to choose your limit.
- Make your payments on time.
It's crucial to make your payments on time every month. Don't try to pay off the entire debt if you can't afford to; just make sure to pay what you've promised to each month.
These payments will be reported to the three credit bureaus each month and will begin to build your credit history. Keep in mind though, that missed payments will also be reported and will have a negative affect on your score.
- Don't max your limit.
Maxing out your credit every month can lead to a poor credit score because it means that your credit utilization percentage, or used credit, is too high. It's recommended to keep your utilization percentage under 30% each month.
- Avoid having numerous accounts.
When you are first building your credit, having numerous accounts is a good way to end up hurting your credit score. Plus, each new card you apply for will require a hard inquiry, which will cause your score to drop a few points each time. Start with one account and slowly build up over time.
Once your credit has reached a good ranking, it can be beneficial to open another line of credit. Just keep in mind that you do not want to overwhelm your finances.
- Check your FICO score.
You can check your credit score, also know as your FICO score, two times a year for free directly through one of the three credit bureaus. It's important to do this so you know and can see if your score is building and at what rate.
If you see that your score is not improving or has even gone down, it's time to check your spending habits and see where you can improve things for the future.
- After a year, apply for a Credit Card.
Once you've paid on time for 12 months, you should have a score that is acceptable for an unsecured credit card. Keep in mind that for every card you apply for, you'll have a hard inquiry. So again, only apply for one at a time and wait for a few months between each for your credit to recover from the small bumps.
Patience is a Virtue
Building a good credit score takes time; it certainly does not happen overnight. Once you have built your credit, you'll have many opportunities that were previously unavailable to you.
If your credit ever does take a hard hit, consider looking at what you've been purchasing as well as checking your report; you may have been a victim of identity theft if you see unusual purchases.
Recovering from a score that has dropped will take time and patience, but we can also help you rebuild your credit score. One of the most affordable ways is by making on time payments for a secured loan such as for a new or used vehicle.
If you need to rebuild your credit now, simply take a few moments to complete our quick and easy online application. Your information will be secured and encrypted to afford you the best security while you repair your credit to its former glory. Let us help you today!