10 tips to establish credit when you have no credit history
Is a lack of credit history impacting your life? Looking for ways to build it up? Here are 10 ways you can establish credit.
Your credit file and, in particular, your FICO score, can have a profound impact on every aspect of your financial life. Indeed, lenders will look at this number to determine your creditworthiness, while you might face worse credit card deals, penalties, and higher interest rates if your credit score is too low.
But if you don’t have a consolidated credit history, it might seem impossible to access a “good” or “excellent” credit score needed to stabilize your finances. Luckily, building a credit file is easier than you think. Get started today with these 10 tips.
1) Take a hard look at your financial situation
According to 2023 estimations, nearly 70% of Americans have not noticed any improvements in their financial situation in the past 12 months. And, “not saving money” and “getting into poor financial habits” topped the list of the main financial mistakes made by US households.
But to avoid these mistakes, improve your finances, and start building a positive credit history, the first and most important step is to know your financial situation inside out. And, of course, assessing it honestly and objectively will help you discover what credit-building strategies are best for your individual needs.
Some of the aspects to analyze include the debts that you have, any income sources available to you, and how much money can go into each project. And, don’t forget to create a budget!
2) Learn about what impacts your credit score
Once you have a better idea of where you stand financially, it is time to start building your credit score. And, to do so, you’ll first need to learn about the factors that influence your credit rating.
Some of the main factors you’ll need to account for are the length of your credit history, your debt management habits, income sources, employment stability, credit card usage, and how much you owe.
3) Apply for a secured credit card
If you have a limited credit history, the chances are that most premium credit card deals will be out of reach for a while. However, credit cards are powerful tools that can help you build your credit rating. That is why you should get started by applying for a secured credit card.
Secured credit cards work similarly to debit cards, where a deposit is made upfront and used as collateral in case you are unable to pay your debt. If you are unsure how to get started, resources such as www.badcredit.org can guide you in the choice of the best-secured credit card for your needs.
4) Become an authorized user on a credit card
If you don’t have any credit history, consider becoming an authorized user of someone else’s account to help establish a positive payment history that will get reported to the three major bureaus (Equifax, Experian, and TransUnion). Choose an account that has been open for a while and is in good standing.
5) Report your rent payments to credit bureaus
If you’re a tenant, reporting your rent payments can build up your credit score. For example, you should consider getting in contact with your landlord or rental company and discussing the possibility of getting your rent payments reported to one of the three major credit bureaus.
Doing so will show financial responsibility which would in turn help gradually increase your credit rating. Be clear on the legal and financial obligations of this arrangement.
6) Pay for your utilities and bills on time
Whether it’s your phone bill or electricity, water, or gas bills, make sure you are keeping up with monthly payments – and check that your payments are reported to the credit bureaus!
Staying current on electric or cable bills is a great way to demonstrate responsibility and become more credit-worth in the eyes of future lenders. If you are struggling to remember when the bills are due, some strategies to adopt include organizing your bills in one place, setting up reminders, and creating a strict budget.
7) Take out a small loan and keep up with repayments
While building your credit rating, you might be able to take out a small loan. If this option is available to you and you have enough funds available, don’t think twice about leveraging this opportunity!
Taking out a small loan that you can easily manage and keeping up with repayments can help you build your score and prove your creditworthiness.
8) Get a store credit card
Most retailers allow customers to open an in-store account and report it to the major credit bureaus, allowing you to establish a positive payment history with these stores. Although this can be a powerful credit-building tool, make sure you are keeping up with payments and only use the card for purchases you can afford.
9) Manage your credit cards properly
Once you are able to apply for and obtain a credit card, make sure to use it properly! This means keeping your utilization rate below 30%, making more than the minimum payment each month, and repaying your bills in full each month.
10) Be patient and monitor your credit
Building your credit score can take months. Keep up with your strategies, gain insights into your spending habits, and monitor how your credit score changes over time to be in full control of your financial situation!