If you have no credit history, it can be difficult to qualify for a loan or credit card. This can be a frustrating Catch-22 situation: you need credit to establish credit, but you can’t get credit without a good credit score. Fortunately, there are several strategies you can use to get started on the path to a high credit score, even if you have NO CREDIT HISTORY.
By following the tips in this blog, you can begin establishing your credit history and improve your chances of getting approved for loans and other types of credit in the future!
What is A Credit Score and Why Is it Important?
Your credit score is a number that represents your creditworthiness. It is important because it is one of the criteria that lenders look at when considering a loan or line of credit. A high credit score means you’re a low-risk borrower, which could lead to better loan terms. Conversely, a low credit score could lead to higher interest rates and could mean you won’t qualify for certain loans. There are different types of credit scores, but the most common is the FICO® Score, which ranges from 300 to 850.
What Factors Make Your Credit Score
Your Payment History
Are you making your payments on time?
The Amount of Debt You Have
This is measured by a Ratio (How much debt DO YOU HAVE vs. how much debt CAN YOU HAVE?)…we’ll dive deeper later.
The Length of Your Credit History
How long have you been using credit?
The Different Types of Credit You Have
Do you have Credit Cards(reusable debt) and Loans?
Recent Inquiries for New Credit
Have you been trying to get new credit?
Generally speaking, you can improve your credit score by paying down debt, maintaining a good payment history, and using a variety of types of credit responsibly.
4 Strategies to Escape No Credit History Quickly
If you’re starting from scratch with no credit history, it may seem like a daunting task to build up your credit score quickly. However, by following some simple strategies, you can boost your credit in no time.
No Credit History: Open a Secured Credit Card
If you have no credit history, one of the best things you can do is open a secured credit card. A secured credit card is a type of credit card that requires a security deposit, which acts as your line of credit. That deposit is usually equal to your credit limit, and it acts as collateral in case you default on your payments.
There are a few things to keep in mind when you’re looking for a secured credit card:
Include ALL 3 Credit Bureaus
Make sure the card reports to all three major credit bureaus (Experian, TransUnion, and Equifax). This is important because you want your payment history to be reported to all three agencies so it can help improve your credit score.
Look for LOW or NO FEES
Look for a card with low fees. Many secured cards have annual fees and/or monthly maintenance fees, so it’s important to find one that doesn’t have these charges.
Get the Highest Credit Limit Possible
Finally, try to find a card with a relatively high credit limit. This will give you more flexibility in how you use the card and will also help improve your credit utilization ratio (which is another factor that impacts your score).
No Credit History: Become an Authorized User on Another Person’s Account
Becoming an authorized user on someone else’s credit card account is a great way to go from no credit history to a GOOD credit score, almost instantly. Here’s how it works: the account holder agrees to allow you to use their credit card and make charges. The account holder is still responsible for making payments on the credit card, but you will benefit from THEIR GOOD PAYMENT HISTORY by having it reported on YOUR credit report.
What’s in This for You?
Becoming an authorized user is most beneficial if the account holder has a long history of on-time payments and a low balance relative to their credit limit (known as a low “credit utilization ratio”). That said, becoming an authorized user can still be helpful even if the account holder doesn’t have perfect credit.
What Do You Need to Do?
You generally just need to provide the credit card issuer with your name and contact information. Some issuers may require additional information, such as your Social Security number or date of birth. Once you’re added as an authorized user, the issuer will typically send you a new credit card with your name on it.
You don’t have to use their credit card or even have access to their credit card, as an authorized user. There are even companies that will allow you to pay to be added as an authorized user so you can boost your credit score.
No Credit History: Pay Your Bills On Time and In Full
So now you have the ability to use “credit”. The best thing you can do is make sure you always pay your bills on time and in full! This includes both credit and utility bills. This sounds like a no-brainer, but it’s important to remember that late or missed payments can damage your credit score, whereas timely, consistent payments will help improve it.
Tips To Keep Up With Your Payments
One way to make sure you never miss a payment is to set up automatic payments with your creditors. This will ensure that your bill will be paid on time each month, without you having to worry about it. Another option is to set up reminders for yourself. You can do this with your phone or a calendar system, so that you remember to make your payment each month.
Whatever method you choose, just be sure that you’re always paying on time and in full. It may seem like a tedious task, but it’s one of the best things you can do for your credit score.
No Credit History: Understanding Your Credit Utilization Ratio
Credit utilization is one of the most important factors in your credit score—but what is it? Credit utilization is a ratio that compares your credit card balances to your credit limits. A high credit utilization ratio can hurt your credit score, because it shows you’re using a lot of your available credit.
How Is This Calculated
You can calculate your credit utilization ratio by dividing your total outstanding debt by your total available credit. For example, if you have $1,000 in outstanding debt and $5,000 in available credit, your credit utilization ratio is 20%.
What Credit Utilization Should You Target?
Ideally, you should keep your credit utilization ratio below 30%. That means if you have a $5,000 credit limit, you shouldn’t carry more than $1,500 in debt. If you’re trying to improve your credit score, one of the best things you can do is reduce your credit utilization ratio. You can do this by paying down your debt or by increasing your credit limits.
Bonus Tip!
If you really want to kill it in this credit utilization category, keep track of when your statement closes on a calendar. Five days before it closes, log into your account and pay all but $50. The credit card company only reports your statement balance, when your month closes.
Why Does This Matter?
Let’s say you have a $200 credit limit…hopefully, you have higher than that. If you spent $200 during that month, that would be 100% credit utilization (BAD!!!) The fix, log in before your statement closes and make a $150 payment. You now have a $50 balance when the statement closes. That would be a 25% credit utilization (Awesome!!!)
Does This Really Help?
This makes you look more responsible to the credit bureau and more worthy to other creditors! This is tedious, but it does work. I used it to go from $300 in available credit to $10,000 in just over a year’s time. The work can be hard, but if you do the things others won’t do, you’ll have the things others won’t have!
Conclusion
Building up a good credit score can be no easy feat, but following these three strategies can get you on the path to having excellent credit in no time. They are simple and might take some discipline and patience—but they’ll pay off in the long run! If you have any questions about your particular financial situation or need more advice, don’t hesitate to contact a credit advisor who will help guide you through the process.
If this seems like a lot to take in at once, just remember…
“We all learned to walk one step at a time after MANY failures, but we all survived it because we didn’t quit!!!”
-Doss Experiment
Not Really Into Reading….Check out my YouTube Channel for more content: Doss Experiment
Please check out my other Blogs here.
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