How to Build a Credit History When You Have None

You need to build a credit history not only to eventually be able to finance a car or a home in the future, but also because your credit history will determine whether you can get a lease on an apartment, get a cell phone contract in your name and it could potentially determine whether you get the job you are applying for. However, it's really a Catch-22 when you are young. You need to build a credit history, but because you don't have any credit, it's almost impossible to get someone to issue your first credit card or approve your loan application. The following tips should help you to establish your credit.

Instructions

1

Check your credit report for errors. One of the reasons you may be having trouble getting credit is because you might have errors on your credit report. You may have someone else's information with the same name as you on your report or you may have been a victim of some form of identity theft. You are entitled to a free credit report from each of the three credit reporting agencies each year: Experian, Equifax and TransUnion. Get your free reports and check for any errors.

2

Open a checking account. Definitely open a checking account, but also open a savings account, if possible. Establishing an account history, managing your money properly and keeping the account in good standing will not be reported to the credit bureaus, but it will show that you are able to manage your money. Your checking and savings habits will be considered when applying for your first loan.

3

Apply for a store credit card or a student card if you are in college. Department store credit cards and gas cards are usually not a good idea. They usually come with low credit limits and high interest rates, but if you are unable to get credit through the major banks this may be a good option. They are typically easier to get approved for than other credit cards or loans. Be sure to look for a card with no annual fee, or at least a low fee, and one that is reported to all three credit bureaus if they are not reported they will not help you build a credit history. Also, be sure to manage your credit properly. Use the card periodically to establish a payment history, but be careful not to charge too much and make sure to pay off your balance in full each month. By paying off your balance each month you will not have to pay interest. Always make your payments before the due date and never go over your credit limit.

4

Join your local credit union. If you meet the requirements to join a credit union, do so. It may be one of your best chances to get a good rate on your savings account balance, vehicle loan or home loan in the future. It may also be easier for you to qualify for a credit card or loan than at a traditional bank. Credit unions are more community or member oriented and less focused on profits than traditional banks.

5

Get someone to co-sign for a loan. If you are having trouble getting approved for credit or a loan on your own you may be able to get approved if you have someone co-sign for you. This can be your parents or grandparents, for example. Apply for a very small installment loan for a short time period just to establish payment history. Once you have established some credit it will be easier to get approved in the future.

6

If all else fails, apply for a secured credit card. Basically, a secured card means that there is some type of asset to back-up the credit. If you don't make your payments the bank can seize the asset that is securing the loan. Car and home loans are based on this principle. If you do not make your car payments your car can be repossessed. Secured credit cards are pretty easy to get as long as you have assets to back them up. If you have a checking account, go to your bank and apply for a secured credit line. If you apply for a $500 credit limit you will have to pledge $500 of your account balance to secure the credit card. Make sure that the card has a low application and annual fee, that it will be reported to all of the credit bureaus and that you will be able to convert the secured card to an unsecured card after a year to 18 months of established on-time payment history.