While it may not feel easy not to have a credit history, it can be an excellent place to start from. Imagine not having any debt—it’s basically a clean slate. You have the capability of directing your credit in a positive direction. It’s also important to note that starting from scratch can be much easier than working your way back from a negative credit history. So, instead of looking at it as a bad thing, look at it as an opportunity to build something strong and move toward a big used car purchase.
Where do You Start When You Have No Credit?
There is one drawback to having no credit, especially if you need it. It can be hard to build credit without credit. Basically, lenders still look at you as a risk. That said, there are a few simple steps you can take to start building your credit:
- Open a bank account – If you don’t have a bank account yet, it’s time to get one. Creditors may give you a break if they see that you make regular deposits and withdrawals—that you have an income. One thing you’ll want to note is that you don’t want poor bank history. In other words, set a budget, stick to it and don’t overdraft your account.
- Pay any bills you do have on time – While this may not go on your credit report it does a couple things. First, it helps you establish a habit of paying things when they are due. It also will help prevent your first credit from being negative. If you don’t pay utilities or other bills on time, you’ll end up with collections on your credit history, which is considered negative.
The Next Steps in Building Credit
Once you become established with a budget, bank account and a habit of paying bills on time, move forward to start building your credit and credit score. It’s not always simple to find ways to do it, but here are some examples of how others with no credit have gotten started:
- Secured credit card – A secured credit card is exactly what it sounds like, something that is secured, or protected. It usually works with you depositing the money ahead of time – for example, $500 or $1000 – and that is the amount of “credit” you have.
- Low-limit credit card – These credit cards often start around $250. That’s your limit. Once you prove your credit worthiness, you’ll find they increase your credit line. The key is to keep your balance low, but use it from time to time and pay off the balance quickly.
- Cosign a loan – Maybe you need a car to get to and from work or school. If that’s the case, finding a cosigner for your auto loan is a great way to build credit. However, before you run out and start asking people if they’ll help you, it’s important to recognize that the cosigner’s credit profile is on the line. If you default or make late payments, it affects them as well. Only cosign if you're positive you can be responsible and pay the money back on time, every payment. You may even be able to refinance somewhere along the way and get the loan solely in your name.
- Pay your student loan on time – Most people are able to get a student loan, even with no credit. Use the opportunity to pay an installment on time regularly. This will help build your credit.
Remember to take baby steps. You don’t want to open several credit accounts at one time and find yourself unable to pay. Instead, incorporate each credit-building tactic one at a time.
Advanced Credit-Building Tactics
Once your credit is on its way, you can start using some of the tips and tricks to keep your score up. This includes having a few cards and rotating them, but paying them off as you go. This builds a positive record for your credit report. Make sure not to have too many lines of credit or loans, or open them all at the same time. Auto loans and home loans are okay too, but just make sure that you are paying everything on time. That is a key to good credit. If you have a tough month, call your creditor rather than allowing a late payment mark to hit your report. Often, creditors will work with you.
Lastly, learn how to monitor your credit score/report. You can pay to do this through the major credit reporting agencies, or use a free service like Credit Karma. Note that many credit card companies offer a free score watch as well—so use it.
Building credit from the ground up can be beneficial. However, approach it carefully, and alter strategies when necessary so you don’t get behind or end up in collections.
