Young adults and college students often start with little to no credit.
Getting approved for a credit card or a loan can be very difficult with limited credit history.
However, there are ways for people with no credit to starting building credit right away.
This article will show you the methods people are using to build credit so you can start getting approved for loans and credit cards.
How to Build Credit with No Credit
People who are trying to build credit with no credit score can be very frustrating. Lenders need to see some positive credit history before offering you credit, so how are you supposed to get offered credit without a score?
Credit Cards for People with No Credit
Secured Credit Cards
Secured credit cards are a great way for anyone to get a credit card to help build credit. A secured credit card works very similarly to an unsecured credit card. The difference is that with a secured card, you will need to pay a deposit equal to the credit limit of the card.
If you get a secured credit card with a $300 limit, you will need to send a $300 deposit to the issuing bank. This deposit is held as collateral for as long as you have the card. After a period of 6-12 months, the lender may transfer the secured account into an unsecured account and send you your deposit back.
A secured card is often the first credit card many people have limited to no credit start-off. If you are starting without a credit score, you can go from zero to 600 in a few months. Typically it will take 6 months of positive credit history to have a credit score. Exactly what that score will be isn’t predetermined, but usually, it is good enough to qualify for several credit cards.
Student Credit Cards
Student credit cards are specifically for college students with limited credit history. Discover is one of the top companies offering student credit cards. These cards work just like any other traditional credit card except that they are available to students with little credit history.
Most student cards will require some credit history. So if you don’t have any credit history, you will still need a secured credit card or be an authorized user on someone’s credit card account first.
An authorized user is an additional cardholder on a credit card account. A credit card account owner can add authorized users that are as young as 15 years old. If your parents, relative, or friend has a credit card in good standing, ask them to add you as an authorized user. You don’t even need to have your own card.
Often authorized users are just used to build credit. However, FICO does factor authorized users into their credit scoring algorithm. This is a great tactic to build credit that every student needs to take advantage of.
Keeping Up With Your Payments
Once you have an open revolving credit account, you need to ensure you stay on top of the payments. One of the biggest reasons people miss payments on credit cards is because they forgot to pay the bill. You can easily avoid this by setting up automatic monthly payments.
Every credit card will have online account management where you can set up autopay. Set the auto-pay to pay the minimum monthly payment. Even if you plan on paying more than the minimum payment, you can at least have the minimum amount due paid automatically. To pay more than the minimum, just make a second payment.
Why You Need Good Credit
Having good credit is more than just bragging rights. Interest rates, home loans, auto loans, credit cards, etc. are all affected by your credit score. High-interest rates can cost consumers tens of thousands of dollars over the course of their lifetime. Bad credit home loans are hard to find and come with high fees and rates. Maintaining a good credit score will make obtaining a mortgage or getting that new car a piece of cake.