Things You Need to Build Credit

To get credit, you need credit, but what if you don't have credit? While lenders want to see a credit history before they approve you for a loan or credit card, you can still secure certain types of loans and credit cards with no credit. That's fortunate for anyone who wants to build credit, because credit cards and loans are necessary credit-building tools.

Understanding Credit

Your credit worthiness is expressed as a credit score. A credit score ranges from 300 to 850, with 300 being the worst. However, anything below 620 is usually considered subprime, which means credit card companies and lenders are less likely to approve you for credit cards and loans. Your credit is adversely affected when you make late payments, open too many credit accounts at once and close credit cards. Conversely, your credit is positively affected when you make timely payments and have long-lasting credit accounts.

Bank Account

You can't establish any sort of credit with a bank account. However, you can only acquire what you need to build credit by having a bank account. Lenders and other financial institutions want to see that you have a bank account before approving you for anything. According to moneycentral.msn.com, lenders see bank accounts as signs of stability.

Credit Cards

Credit cards serve as valuable credit-building tools. If you have no credit history, you can apply for a credit card through your bank or apply for credit cards designed for people with bad credit or no credit at all. A credit card comes with a fixed amount of available credit. You can use that credit to make purchases. Once you pay off the amount you charged, you will see a positive change to your credit score. If you don't pay off the amount, then your credit score will go down. All credit cards come with interest rates. The national credit card interest rate is 16.86 percent as of January 15, 2011; you'll likely pay more than that if you have no credit history.

Loans

Loans, like credit cards, build -- or ruin -- your credit. The problem with getting approved for loans is that you usually need some sort of credit history to show the lender. Without any credit history, the lender can't assume that you'll pay the money back. A lack of credit doesn't mean you can't get approved, though. Many lenders will approve you for a loan if a co-signer signs the loan. A co-signer is a person with good credit whose signature tells the lender that he will assume responsibility should you fail to make the loan payments. Once you are approved for a loan, making the monthly payments is a necessity. If you are 30-days late, the lender will report you to the three main credit bureaus and your credit score will go down.