Having little or no credit history is a double edged sword. Apply for credit and you get denied because you have no credit…but how do you get credit when you have no credit? Building your credit from scratch does not have to be impossible. Following a few simple steps can put you on the right track to building a credit history with good standing.
First and foremost, start small. Don’t try to apply for every credit card or loan under the sun. Begin building your credit with a secured or prepaid credit card. Secured or prepaid credit cards are the most useful tool for consumers with little or no credit history. These types of credit cards are simple to get and only require an initial down payment. These credit cards work when you make a payment prior to charging on the card and the payment acts as your credit limit. You are only able to charge up to the amount you put down. You will receive a monthly statement and if you are unable to make a timely payment, your deposit will be used toward your balance. Timely payments will be reflected on your credit report. This allows you to positively build your credit. If you continue to make payments, the credit card company may offer you a traditional card where no down payment is required.
Next, ask a parent, friend or relative to co-sign on a loan or credit card with you. Having a joint loan credit card will allow you a larger credit opportunity, and the account to be reported on your credit file. If you are responsible and make timely payments, the account will be reported on your credit file and can help build your score. You can also ask to become an authorized user on a card. Be careful who you ask because their payment habits will affect your report. Only become an authorized user on an individual’s card who you know is responsible with payment or it could end up damaging your credit report further.
Last, be aware of the state of your credit. When trying to build your credit from scratch, you need to understand why you have no credit or poor credit in the first place and be able to resolve these issues. If you are a graduate with student loans and that is all that you have on your report, begin the process of repayment. If you are unemployed after school, seek a deferment before the payments become due so that you have time to start working. Student loans amount to a significant amount of debt which account for a large portion of your credit score. Also, if the only credit you have on your report is negative you need to develop a plan to repay your debt so that you start over with new, positive accounts.
If you are in need of advice or assistance regarding your credit, contact SmithMarco P.C. for a completely free case review from a licensed attorney.