Building Credit Without Credit
How To Build Credit When You Can’t Get Credit
Many people are surprised to learn that not having a credit history can be the same as having a bad credit score in terms of how the credit agencies view you.
If you have never borrowed money before, such as on a credit card, the credit agencies have very little credit history to determine how well you can handle your debts.
As a result, you are classed as having a poor credit rating and so the credit agencies become less willing to lend you money.
So even though you may be excellent at managing your money and have never got yourself into debt, you can still have a bad credit rating if you haven’t borrowed much money on credit before.
There is an exception to this however. Teenagers will generally find it very easy to get credit, because creditors know that they haven’t had time to build up their credit history yet and want to get them hooked while they are still young.
But if you are over 30 with no credit history, creditors will become very suspicious as to why you haven’t received credit before.
Some of the possible reasons why people have not built up a credit history can include:
Cutting Up Credit Cards
Some people who get themselves into credit card debt decide the best way to get themselves out of debt is to cut up their credit cards.
As a result, they pay for everything in cash and don’t get themselves into debt. Unfortunately, this means their credit history will be lacking or empty since they stopped using their credit cards.
You Think Debt Is Bad
From a lenders perspective, being debt free is actually a bad thing, because it means they have no idea how you would handle a loan if they gave you one.
So for people who try to live their entire lives debt free, their credit history will reflect this which will make it difficult should they ever need to borrow money.
What Can You Do To Build Credit Without Credit?
Eventually there comes a point in most people’s lives when they need to borrow money on credit. They may need money for a new home, a new car or even for a holiday. But when they apply for credit they get rejected because they have a bad credit history.
When this happens you need to take steps to build your credit score by adding positive credit to your credit report.
But what happens if you can’t get credit? How do you build credit without credit?
Fortunately, it is possible. Below you will find a few ways that will help you to build credit without credit.
1 – Build Your Credit With A Friend
In order for this method to work you need a really good friend, and someone who trusts you a lot.
If you can get a friend to agree to have you as a co-signer on their credit card, you can essentially piggyback on their good credit rating and use it to help build back your own credit.
All that needs to be done is for your friend to call the credit card company, and request that you be placed on the card as a co-signer. You will then be sent a copy of the card.
Once you have the card, although you can use it, you don’t have to. As long as your friend uses the card and pays back their debts on time, your credit history will gradually start to fill up and your credit score will improve.
2 – Build Credit With A Secured Credit Card
A secured credit card involves you putting money into an account before you receive a credit card. So for example, if you put $400 into your account you will be allowed to charge up to $400 on your secured credit card.
Some banks however may allow you to exceed this amount by two or three times.
Because you are essentially insuring the money you borrow yourself, your past credit history tends to be less of a factor when you apply for such a card.
However, it is very important that your credit card is not listed as a secured card to the credit bureaus, and also that it lists your credit limit. Otherwise, you could make your credit worse by getting one.
3 – Build Your Credit With Easy Credit
A frequently overlooked method of building credit is with stores. Some stores, such as clothes or jewellery stores, will give out money on credit quite easily which you can then use to your advantage to build up your credit score.
If you do use this method, make sure that the credit these stores offer you reports back to the credit bureaus, as not all of them do.
4 – Build Credit By Keeping Accounts Active
Once you have been able to find sources of credit, it is important that you use them each month.
For each account you have, keep a small balance of around $50 on it. You should then pay the minimum amount when the bill arrives each month on time.
This is what future loan officers and other creditors will be looking for. Remember, you want to show that you can handle your debts and keep them under control.
If your account is inactive, it will not help you to improve your credit score at all.
How Long Does It Take To Build Good Credit?
If you have mistakes on your credit report, it can take up to two years to get them corrected and to restore your previous line of credit.
If you are trying to build your credit when you have no credit using the methods described above, it will take you at least one year for any creditor to take you seriously.
What Won’t Help You To Build Your Credit
Not all forms of debt will help you to build up your credit score because some are not reported to the credit bureaus. Some of these include:
• Private loans from friends or relatives
• Loans for cars from small car lots
• Rent
• Utility payments
