This can be a tough question when you are just starting out. If you want to go to college or get a car, you may not know which way to turn. In this article will be some ideas to help the first time credit seeker in establishing credit in hopes of putting you on the right track from starting from no credit to building a good credit score.
Feeling Invisible Credit wise
There is no shame in not having a credit history; it just means you have to build one. Unless your parents allowed you to become an ‘authorized user,’ on one of their accounts, there is little chance you have a credit history. Seldom do parents allow their children to become a ‘joint account holder’ on a credit card because of their age and ability to pay.
Is It No Credit or Bad Credit
Having no credit is not the same as bad credit. No credit means you do not have a credit history. Bad credit means that the person was extended credit, and failed to repay the debt. The lenders sometimes look at both similarly because they cannot determine how someone with no credit history will be when it comes to paying back on an agreement. Lenders base a loan on a positive credit history.
Steps to Establishing Credit for the Young Adult
There are a few ways that someone new to credit can establish himself or herself in the credit world. It does take a little time, but that is why it is called a credit history.
First, it would be helpful to have a “verifiable” job. Even if you are in college full time, a source of income is necessary. If you don’t have a job, you will need to have a co-signer. That is not a position many people like to be put in.
Here are a few ways to start establishing yourself:
I. Try your Bank
If you have a savings or checking account already, then you have an opportunity to start locally.
- Ask for a small loan
- Ask for a credit card
- Ask for a secured loan
This works when you have been responsible with your account. The best way for you to handle this is to go to your bank directly and speak with the branch manager. You already have an existing relationship with the bank or credit union so a face-to-face meeting to discuss and apply for credit is a more responsible approach than applying online.
II. A Revolving Department Store Card
These are usually safe bets that you will be approved. Watch out if you decide to use this venue:
- Have high-interest rates
- Not versatile
- Encourage you to spend by offering discounts
The nice part about using this type of card is you can probably qualify in a few months for a major credit card if you use the department store card wisely.
III. The Student Credit Card
If you are in college, you are probably able to qualify for a major credit card, regardless of having no credit. That is the positive side. Now the all-important downside:
- Student credit cards usually have high-interest rates
- They usually carry an annual fee
- Other fees may apply when you leave college
As you can see, this is not the best option, but it is an option if you are in college. Some colleges send you a card when you have loans. If your semester doesn’t exceed your loan amount, the balance is loaded on your credit card.
IV. The Secured Credit Card
This card is like putting money in the bank for a rainy day. It is there, but you cannot use it. You deposit the same amount of money as the credit limit on the card. Then, all you have to do is:
- Make your payments on time when you use the card
- Pay off the card when possible
- Don’t default
As long as you are current and keeping up with your payments, eventually your card will become an unsecured credit card. It doesn’t matter that you have no credit history because the bank has your money for safety as a security measure. The bank will raise your credit limit and that is a sign that you are on your way to building the good credit history that you wanted to begin with.
V. The Secured Loan
This was mentioned before under your bank, but it should be explained a little more clearly. It is set up much like the secured credit card:
- Have money available in the amount you want to borrow
- Explain your situation of wanting to build a history since you have no credit
You can go into the bank or credit union where you have an account and ask to speak to the loan officer. You should only need around $500.00 to accomplish this. Keep the loan small enough to be able to handle the payments easily. You are deliberately going to be making payments strictly to build a credit history, not to pay off the loan early.
I hope this has helped you get some ideas on how to start building a good credit history. Have you found a good way to start building a good credit history that isn’t mentioned here?