6 Ways to Build Credit if You Have No Credit History
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“Sorry, your credit score is not good.”
You have no idea what you did wrong! However, this can certainly be the case occasionally when you apply for a loan or credit card.
Interestingly, the reason could be having no credit history at all! Let’s understand this in a step-by-step way.
What is Credit History?
Credit history refers to a record of an individual's borrowing and repayment activities. It provides a comprehensive overview of their creditworthiness and financial responsibility. Credit history includes information about the types of credit accounts held (credit cards, loans, mortgages, and so on) as well as the payment history associated with those accounts.
Having no credit history can make it challenging to establish a solid financial foundation. In this case, banks and financial lenders might not be sure whether you can be trusted with the asked amount or if you will be able to pay back the loan on time.
With that said, whether you have just started earning or don’t know exactly what is required of you to build a good credit score from scratch, you don’t need to worry! We are here to provide you with several, easy-to-employ strategies that can help you fast track your journey of building credit history and credit score.
Build Credit with No Credit History with these Easy Steps
With a few steps taken and a few things maintained, you can easily build a good credit score for an account with no credit history.
First and Foremost - Apply for a Secured Credit Card
A secured credit card can be an excellent starting point for individuals with no credit history. Unlike traditional credit cards, secured credit cards require a security deposit, usually equal to the credit limit. This deposit protects the lender in case the cardholder defaults on payments. By responsibly using a secured credit card, you can demonstrate your ability to manage credit and establish a positive credit history.
Note: When selecting a secured credit card, it is crucial to choose one that reports your payment activity to the major credit bureaus. This way, your responsible credit behavior will be reflected in your credit report, helping you build a solid credit profile over time.
Additionally, whether you have a secured credit card or an unsecured one, make sure to pay your bills on time and keep your credit utilisation low to maximise the positive impact on your credit score.
Become an Authorised User
Another effective way to build credit is by becoming an authorised user on someone else's credit card. If you have a trusted friend or family member with a good credit history, you can ask them to add you as an authorised user to one of their credit cards. As an authorised user, you can benefit from the primary cardholder's positive credit history.
Note: Remember, being an authorised user comes with some responsibility (timely payments and impact on credit score). Thus, make sure to communicate with the primary cardholder and agree on the ground rules for usage and repayment.
Explore Credit Builder Loans
Credit builder loans are specifically designed to help individuals build credit from scratch. Unlike traditional loans, the borrowed funds are held in a savings account or certificate of deposit (CD) until you repay the loan in full.
Repaying a credit builder loan on time demonstrates your creditworthiness and responsible payment behaviour. As the lender reports your timely payments to the AECB, you gradually build a positive credit history.
As with other types of loans and debts, ensure the timely payment of all instalments as late payments can hurt your credit score.
Establish a Positive Rental History
Your rental payments can also contribute to building credit, even if they don’t appear on your credit report by default. Some credit reporting services might allow you to report your rental payments to the credit bureaus, providing an opportunity to enhance your credit profile.
Consider working with a rental reporting service that reports your rental payment history to the credit bureaus. This way, your on-time payments will be factored into your credit score, making it easier to establish credit. However, it is important to ensure that you make timely rental payments consistently to reap the full benefits.
Apply for a Credit Builder Account
Credit builder accounts, often offered by credit unions or online financial institutions, are specifically designed to help individuals with no credit history establish credit. These accounts work by securing a small loan or line of credit with the funds held in a separate account. As you make regular payments on the account, the lender reports your positive payment history to the credit bureaus, boosting your creditworthiness.
When selecting a credit builder account, it is crucial to inquire about fees, interest rates, and reporting practices. Some institutions offer these accounts with minimal or no fees, making them a more affordable option for building credit and establishing a positive credit history.
It's important to note that credit builder accounts are different from secured credit cards or loans. With a credit builder account, you are essentially saving money while building credit, as the funds that you deposit serve as collateral for the account. The lender reports your payment activity to the credit bureaus, helping you build credit over time.
To maximise the benefits of a credit builder account, make timely payments and in full. Consistent and responsible payment behaviour demonstrates your financial reliability and enhances your creditworthiness.
Apply for a Store Credit Card
If you visit a store or a few stores in particular often, you can get yourself a store credit card. These cards are generally easier to obtain compared to standard credit cards.
Compared to regular cards, store credit cards are usually easier to obtain. Furthermore, whenever you shop, you also build your credit score correspondingly.
Note: Store cards, while offered much more easily than traditional unsecured credit cards, have a high interest rate. To avoid these charges, the best strategy would be to pay off the entire debt each month without fail.
Bonus Tips
With the steps discussed above, you can easily build your credit history over time. However, while undertaking this journey, you should also keep working on preserving your credit score.
Here are some bonus tips to help you maintain your credit score -
- Monitor Your Credit Report: Regardless of the methods that you use to build credit, regularly monitoring your credit report is essential. Check your report for accuracy and promptly report any discrepancies. Monitoring your credit report allows you to stay informed about your progress and take immediate action in case of any errors or fraudulent activity.
- Keep Your Credit Utilisation Low: If you obtain a credit card or credit builder loan, it's crucial to keep your credit utilisation low. Aim to use only a small percentage of your available credit (preferably below 30%). As high credit utilisation can negatively impact your aecb credit score, it is advisable to be mindful of your spending habits and pay off your balances in full each month.
Wrapping Up
While building credit from scratch may seem like a daunting task, this goal is certainly achievable with the right strategies. By starting with a secured credit card, becoming an authorised user, exploring credit builder loans and accounts, establishing a positive rental history, and consistently practising responsible credit behaviour, you can build a strong credit profile over time.
Remember, building credit takes time and patience. Be diligent in managing your finances, make timely payments, and keep your credit utilisation low. With perseverance and responsible financial habits, you can lay the foundation for a positive credit history and unlock the benefits that come with a good credit score.
To sum up, don't be discouraged by a lack of credit history — take it as a blank slate that you can draw a brighter financial future over!
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