How To Build Credit if You Don’t Have Any?

A lack of credit history makes it difficult to get credit cards and loans, which are ironically the tools you need to build credit. If you don’t provide lenders with any past information, they can’t determine how you’ll handle debt.

This is a common challenge for young people and anyone who does not have a solid credit history. There are several financial products and strategies you can use to build your credit.

When you don’t have any credit, here are five ways to build it.

Secured Credit Cards

A security deposit is required in order to open a secured credit card. Your security deposit will determine your credit limit – for example, a $300 deposit would usually entitle you to a $300 credit limit. After that, you will be able to make purchases with your card, and the card activity will be reported to the three major credit bureaus.

If you fail to pay, the credit card company will simply keep your security deposit. However, if you make timely payments, your credit limit may be raised for free or your security deposit may even be refunded.

Authorized User Status

You can also build credit by having someone add you as an authorized user to their credit card. You can use the primary cardholder’s card activity to build your own credit over time once you’ve been added. You don’t even have to use the card or have physical access to it.

You should only become an authorized user if you and the primary cardholder are completely trusted. Your credit might be damaged if one of you goes on a spending spree or if the primary cardholder misses payments. If the primary cardholder’s card issuer does not report authorized user card activity, your credit will not rise.

Credit Builder Loans

Some banks and credit unions offer credit builder loans specifically to help borrowers build credit, as the name suggests. Normally, you borrow a small loan that is deposited into a CD or savings account. You make fixed monthly payments until the loan is repaid, and then you have access to the funds.

Since the loan is used to build credit, banks reduce their risk by keeping the balance until it is paid off.

Passbook or CD Loans

Passbook or CD loans are similar to credit builder loans, except they allow you to use the funds you already have in a CD or savings account to secure a loan. You build credit by making fixed monthly payments, and you can access your balance again when the loan is paid off.

Pay Your Bills on Time

Whenever you open a credit card or loan or put a monthly bill in your name, you must pay it on time every month. Your payment history is the most significant factor affecting your credit score. Building a solid payment history will allow your credit to grow, giving you access to the financial products you need.

Late or missed payments can also severely damage your credit, so make sure you pay your bills on time and don’t borrow more than you can afford.

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