If you do not have a credit history, then it’s time to start building one. But the question is, how do you get credit if you don’t have credit? Here are some great tips:
First, if you do not have credit, lenders and banks may look to other factors that can help them decide if you are a credit risk or not. So you want to be sure that your are managing your day-do-day finance related activities in a way that can help you get their attention:
- Like opening a checking and savings account at a major bank. When you have active bank accounts in good standing, you are creating a history of being able to manage money. I advise starting with a major bank for two reasons: 1) After establishing a relationship with the bank, you will want to apply for a credit card or small installment loan. Major banks are more apt to offer special programs for consumers who are trying to establish or rebuild credit; and 2) Major banks report to all three credit bureaus usually every 30 days, which is what you will need to establish credit quickly.
- And then, paying your rent and utilities on time. If you do not have established credit, you are not completely out of luck. Some lenders will pull a report that will show them whether or not consumers pay their rent and utility bills on time. If they like what they see, they may approve you for credit. That is why it is extremely important to pay these day-to-day living expenses on time.
But when you are ready to start establishing credit, some of the ways that you can do that are:
- To Open a Secured Credit Card Account which I talk in great detail about in Part 6 of this series, Getting Your Mix of Credit In Check. A secured credit card means that you put up your own money as collateral — it looks, feels and works just like a regular credit card, and is considered a major credit card by the scoring system. And after managing your credit card account and paying it on time for 6 months, you can ask for your initial deposit back, at which time that account becomes a regular unsecured account.
- You should also talk to your bank. Banks-especially during and after a nationwide credit crisis-offer many programs to help their clients build and re-establish credit in the form of revolving and small installment accounts. Go into your bank and speak to a representative directly about your options. Make sure that you are very clear on costs, future adjustments and of course, interest rates-especially the universal default rate.
- Join a Credit Union. A credit union is more willing to consider items other than existing credit accounts when reviewing your application for a credit card or loan, such as your personal and financial information. This makes getting the loan much easier. If you demonstrate your stability by making regular deposits to your credit union accounts, paying your rent and utility bills on time, a credit union is a good option.
- Keep inquiries to a minimum. Only apply for accounts that you have a chance of getting. This means AVOID applying for platinum cards that you know you don’t qualify for, and avoid pre-approved credit card offers that you receive in the mail.
- Become An Authorized User On A Family Member’s or Spouse’s Account. The new guidelines outlined in the new Fair and Accurate Credit Transaction Act have caused a lot of controversy about whether or not authorized user accounts still help establish credit, but my experience proves that THEY DO — if you carry the same last name as the credit card owner. (Note: To maximize the benefit of this option, make sure that the account you are being added to belongs to someone you trust, has NO negative history reporting at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old.)
When it comes to establishing a brand new credit history, it will take 4-6 months before you will begin seeing your credit in the form of reports or credit scores, so it’s important-in the meantime-that you keep your new accounts current. Just because new accounts don’t show up on a credit report for new credit users, it doesn’t mean that you will not suffer a severe score penalty if you pay late.
Having credit is your golden ticket to financial freedom for right NOW and it prepares the foundation for financial security LATER. It is really the key that can either open doors for you or lock them shut. And the good news is that you can take immediate action that will enable you to set yourself up for a more secure future by simply making sure that while you are establishing your credit history you avoid defeating mistakes from the beginning, and a good start is my book, The Big Score – Getting It & Keeping It. It will change your life.