Building Credit with No Credit History

The steps to Building Credit with No Credit history are quite simple.

and become an authorized user on a friend or relative's credit card to Build Credit with no Credit history.

Lending institutions are nervous about loaning money to someone who has no credit history. Do not wait to start building your Credit History. It takes time for your credit to age and for your score to grow.

Build a Credit History with No Missed Payments

Much like if you move to a new town and someone you just met wants to borrow money.  The banks have no history to work with.  Your goal is to build a history of borrowing money and always paying it back on time.

Step 1. Get a Checking Account

First get a checking account from your local bank or credit union.  Many credit unions will have free checking accounts.  I refuse to be nickel and dimed by a bank, get a checking account with no monthly fees.

Call around to the banks and Credit Unions in the area that have a location near your home or work. Most Credit Unions have no fee checking accounts.

Step 2.  Get a Secure Credit Card

Next I would apply for a credit card from Discover Card.  If they turn you down for a credit card they will offer you a Discover Secured Card. You will have to come up with the deposit for your secured card.   Use the card a little each month and always make an on time payment and pay it in full.  Maybe put your gas purchase on one card and put your Netflix bill on the another card when you get it. 

The Secured Credit Cards will normally refund your deposit in 6 months to a year and become a regular credit card.  You must use your Secure Credit Card wisely. Always make your payments on time. You are Building Credit with no Credit History. This will depend on your credit score growth and how you have handled your secured credit card. Check this article on Secured Credit Cards.

Do not spend the maximum on your Secure Credit Card and then make minimum payments.  It is best to always pay it off completely.

It will take time to improve your credit score.  However a year or two will go by quickly and your score will improve as long as you make all of your payments on time.

Get a Credit Builder Loan to start Building Credit

Most Credit Unions and some other businesses offer Credit Builder loans. These are designed to help your credit. Self offers Credit builder loans and Secured Credit Cards.

Let's say you get the loan for a year and for $500. The lender will deposit the $500 in a savings account for you, but you will not have access to the money until you pay off the loan.

Make your Payments on Time

Then you start making payments on your Credit Builder Loan. The lender will report your on time or late payments to the Credit Bureaus. You must make the payments on time or you will get negatives on your credit report which defeats the whole purpose of the credit builder loan.

Do Not Wait to make your Payments

Do not wait until the day the payment is due. I always make it 7 to 15 days after the statement prints. If you do not make the payment within 21 days of the statement date it will be considered a late payment.    

Step 3. Get a small Car Loan to start Building Credit

If you own a car outright go to your credit union and get a small loan on it. Even just a $300 loan for 12 months is a good start.

Explain to the loan officer what you are trying to do. Credit Unions are usually very good at helping you with this.

Don't even take the money, just deposit the loan into a savings account and have the Credit Union automatically take the payments out of the savings account.

If your lender is willing, ask them to write the loan for $2,000 and then have them take $1,000 back the first month and leave the balance to be paid in monthly payments over the next year.

What the Credit Report will show on your Auto Loan.

It will show the initial amount of your loan, initial date of the loan, how many payments, late payments and the balance you owe.

Building Credit with Autopay

Setup Autopay from your Checking or Savings account for your Credit Card so you are never late with a payment.

I have my Credit Cards all set up to pay off completely every month on autopay.

It is an excellent habit to get into with credit cards, Pay them off completely every month. It is very easy to get into the Minimum Credit Card Payment Trap.

Another option is to have autopay make at least the minimum payment every month from your checking account. As long as you keep money in your checking you will never miss a payment this way.

Become an Authorized User

Next step is become an authorized user of another person’s credit card.  Hopefully you have a relative or a close friend that would like to help you build credit.  Ask them if they will put you on one of their older credit cards.   The older the card the better as long as they have not missed any payments.   This can make a huge boost to your credit score.  If you can become authorized on a couple of different cards from different people that is even better. A favorite Aunt and your Mom or Dad would be good options.

  

However the banks and Credit Managers understand this Authorized User trick.  I was recently talking to a friend that is a lending manager for an Auto Dealer.  He pays attension to authorized user status on credit applications. He does not value a credit history propped up by an authorized user near as much as if it is totally from the applicants credit history. You will still have to age your account with the cards that are set up only in your name. 

However in time as your accounts age this authorized user account will be another credit line that will improve your average account age.  It also states indirectly that you have a friend with good credit.

Near Perfect Credit Score

A perfect credit FICO or Vantage 300 score is an 850.  However an 800 plus credit score is exceptional and what most people aspire to.  Around 21% of Americans have an 800+ credit score. To earn an 800 plus credit score you must have at least three different credit sources, no missed payments in the last 7 years, Less than 10% credit utilization, and an average credit history of at least 6 years.