Have you have found yourself in a situation where a creditor says to you, "Sorry, we can't offer you credit or approve your application because you have no credit history". It's the same thing as saying we can't offer you a job because you have no previous experience. The question is, "how can I get previous experience if you won't offer me a job" and how can I get a credit history if no one will approve my credit application.
Building credit from scratch usually doesn't happen overnight. Don't despair, the good new is that there are things you can do get yourself on the path to establishing credit.
If you have poor credit and are not approved for a regular credit card, you might want to set up a "secured" or "partially secured credit card" account and use it monthly. Many banks and credit unions offer secured credit cards. Unlike a regular credit card where your credit limit is assigned to you based on risk, with secured credit cards, you will have to make a bank deposit into your account that is equal to or more than your credit limit. This guarantees the bank that you will repay the loan and is an excellent way to establish credit. With most of these cards, your credit line starts out small. Your credit limit is equal to the amount of money you have in an account as a deposit. Because you're borrowing against your own money, lenders are a little more willing to take on an applicant with a low credit score.
Charge no more than 10% of the available credit limit. (If your limit is $800 make sure your balance is never greater than $80). Pay the balance in full and on time every month. Another reason to payoff your balance is that fees and interest rates can be high for secured cards, but using one can help you to establish a credit record.
Another great thing about a secured credit card is that your excellent payment history is being reported to one, or probably two, of the three major Credit Bureau, and your credit score is being improved.
After establishing a history of using your secured credit card responsibly, by paying on time and not going over the limit, your lender is likely to upgrade your card to a regular (unsecured) credit card with a higher limit.
A secured credit card isn't a guarantee for better credit, but with disciplined use it can be a helpful tool in establishing or repairing your credit. By making on-time payments and paying the balance in full each month, you'll show your responsibility level and credit worthiness to the card issuer and the credit reporting agencies.
Start a savings account at a local Credit union or Bank. Save on a regular basis $15.00 a week for about 3 months. Then ask for a small signature loan of about $500 - $1,000 and put that money in your account. Remember this money does not belong to you and has to be paid back. Pay the debt out of the account. Make the minimum payments and remember never pay late. If you feel you might forget to make the payments, have the bank setup a direct debt from your account. When the loan is 75% paid, then send in a check for the balance to pay it off a little early. By making the regular payments to the bank on time, you're building good credit.
Note: Initially, the small signature loan may not be at the very best of terms, but if you start out with a small loan and pay it on time, it will help you build a good credit score. To get the best interest rate, try credit unions and small, local banks. These institutions tend to be more competitive than larger banks.
During this period that you are trying to establish credit, Do not apply for any credit cards. Resist the temptation to apply for that store card because you want that free handbag that comes with the credit application. Remember whenever you apply for credit, the lender looks into your credit file, and you get what's called a "hard Inquiry". If you have a lot of hard inquiries it looks bad and lowers your credit score.
Ask a family member or friend with good credit if you can be an authorized user on their credit card. Becoming an authorized user on their credit card is one way to build credit that doesn't involve applying for your own credit card. As an authorized user, you'll be added to the primary cardholder's account and get your own card, which you can use to make purchases (with the account owner's permission of course). The credit card account, and its payment history, will appear on your credit report, helping you establish a credit history and score.
Just make sure the bank, lender or creditor you deal with reports authorized-user accounts to the credit bureaus. If you are not sure if they do, just ask. And if they don't, just find another creditor.
Once you follow these steps, it's just a matter of time before you start building credit. Remember one of the key factors in your credit score is the length of time your accounts have been established. Another is your payment history, which is why it is so important to always pay on time. The most important thing is to be responsible and use credit wisely. Never, ever, ever borrow more than you can afford to pay back, otherwise, you can get in deep trouble really fast. and not be able to get out.
When you're trying to build a good credit history, don't forget to take credit where credit is due. The Fair Credit Report Act allows you to add information to your report when the absence of any information could lead to the denial of requested credit. The credit reporting agency may charge a small fee for this service.
If your credit history has little or no entries to show your creditworthiness, consider adding unreported repaid debts utility payments, and rent payments. Send a certified letter to the credit bureau asking that they contact the creditor and ask for approval to list the account.
