Establishing Credit With No History

Importance of Credit History

Often times, to gain approval for a credit card, a loan, or even for an apartment, one will need an established credit history. This is a tricky place to be. In order to establish a credit history, you will need a history of payments on one of those three.

There are a few ways around this, else no one would be able to jump that initial hurdle.

Why A Good Credit History Is Important

Now more than ever, society depends on your credit history  to decide whether  it’s a sound business decision for them to approve you for credit cards, loans and even insurance. For instance, before you can buy a house, mortgage lenders need to know that you can be trusted.

Even after approval, your interest rates depend on your credit history. The same is true when purchasing vehicles. A good credit history will lower your rates, and in the case of car loans, will provide you with approval for a larger loan amount. According to The Balance, even employers are beginning to check credit history.

Get A Credit Card

Beginning your credit history journey here may seem too obvious to state, but that doesn’t stop industry leader Credit Karma from making the suggestion. With the correct approach, this is by far your easiest option. It’s only a matter of doing your research and knowing what credit cards you will actually be approved for.

  • Secured Credit Card. Backed by mandatory cash deposits, secured credit cards have a very low barrier to entry. Virtually everyone who applies will be accepted since there is no risk of default for the creditors.
  • Student Credit Card. Rather than going the secured route, some choose to go with an unsecured student credit card. They function essentially the same as a traditional credit card, just with flashy offers, higher interest rates, and lower credit limits.

    This is the best option for experience sake, but also requires a great deal of caution.

Alternatives

If you’ve had no luck acquiring approval up to this point, you’re not out of options yet.

  • Apply For A Credit-Builder Loan. Suggested by NerdWallet, a credit-builder loan is just that. These loans exist to help build credit. The money you “borrow” is held in an account, only to be released after full payment has been completed.
  • Find a Co-signer. If you must have your own credit card, or you’re seeking aid with approval for an apartment, or car, you may need to find a friend or family member to co-sign for you. However, if you default or cannot pay, your co-signer will be liable for the full amount owed.

Meaning more than just money is on the line here. Rather than going the co-signer route, it may be wiser to discuss with your friend or family member,  to add you as an authorized user to one of their own credit cards.

Spend Responsibly

Once you’ve finally obtained a credit card or a loan, it’s important to be completely on top of payments at all times. Gaining a credit history only to wreck it in the process will do you no good. This means keeping the balance low and paying on time and keeping it paid off as much as possible.

  • Stay well below the cards limit. Credit Karma suggests halting usage once you’ve reached 30% of your credit limit.
  • Be sure to pay off your bills each and every month. Even without a credit card involved, an unpaid or late bill will reflect poorly on your credit history for several years.

Establishing Credit Is Only The Beginning

At first, the task may seem a daunting one. Acquiring a credit card alone can seem overwhelming at first. Even when you’ve finally been approved for that first loan or that first apartment, you’ll find life holds a long road ahead of you. In order to achieve upward mobility, moving from apartment to house, or first car to dream car, you will need a good credit history.

This means applying the healthy credit maintenance habits you’ve learned here for life.  When you do, you’ll receive the benefits of lower interest rates, best insurance rates, offers of credit you didn’t apply for, and the list goes on.  That is the side of the credit road to stay on!

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