Building credit from scratch can prove challenging because some credit card companies and lenders do not extend financing to people without a credit score However, it is possible to acquire credit with no prior history. The key is knowing where to apply.
Secured Credit Cards
Secured credit cards are one of easiest credit accounts to get with no credit history because these credit cards require a security deposit before you're approved. Security deposits are compared to collateral, and if you don't pay your credit card balance, the bank issuing the card deducts the delinquent amount from your deposit. Talk to your personal bank or credit union about acquiring a secured credit card.
Store Credit Accounts
Department store and retail charge cards tend to carry higher interest rates, which results in higher minimum payments. But on a positive note, these cards are easier to acquire with no credit history. And despite the higher interest rate, these accounts can help you build a good credit score, and help you qualify for lower rates in the future.
Student Promotions
Some banks offer credit card accounts to college students. Take advantage of these offers and apply for a student account. Student credit card applications are available on most college campuses. These card companies usually start students with a low credit limit and gradually increase credit limits as they make timely payments.
Authorized User
Instead of applying for your own credit card, get help from your parents and convince them to add your name to one of their credit cards. By piggybacking or becoming an authorized user on their credit card, the creditor reports the account on your credit report, and as long as the account remains in good standing, your credit score benefits.
Auto Loan
Smaller, private car dealerships offer loans to people with no credit history. Consider applying for a "fresh start" or "no credit history" auto loan to begin building your credit history. Prepare for a higher interest rate and monthly payments due to your lack of credit experience.
Student Loan
Federal student loans do not require good credit or credit checks. If interested in attending college or a university, take out a student loan to begin adding years of positive history to your credit report.
Paying Bills
Getting approved for credit is only the beginning. To build a good credit history, you've got to make smart credit decisions, which involve paying your bills on time each month. Late payments or missing payments reduces your credit rating, while timely payments add points each month.
Debt Balances
Carrying huge balances on credit cards from month to month also lowers your credit score. Use credit responsibly and develop a habit of paying off charges in full each month to keep debt to a minimum.
Warnings
Building credit from scratch involves credit checks. Bear in mind that credit checks or inquiries can hurt your credit score. Instead of submitting several credit applications within a short time, start slowly. Apply for a line of credit, wait for a response, and then submit another application months later to spread out your inquiries.
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