How to Start Building Credit When You Have No Credit History
You may have recently landed your first job. Or moved to the United States. Or perhaps you’ve only been using cash and debit cards for purchases. Maybe you’ve closed earlier credit lines and are looking to re‒establish credit.
In all of these cases, lenders may think you have a "thin file," i.e. not a long or substantial enough credit record. Though it can take some time, building up a good credit history is a worthwhile investment in your financial future. Here are some ways to help you learn how to build credit.
Get one new credit card to help establish your credit history
While you may not initially get the best interest rate on your first credit card, you may not have to pay interest on your purchases if you pay the full balance each month. Making payments on time is also important, as a good credit history will have evidence of timely payments on credit cards or installment loans. Just be sure that your account is reported to at least one of the national credit reporting agencies–which includes Equifax, Experian, and TransUnion–so there’s a record of your payment history.
Or start building credit with a secured credit card
Another way to begin to build credit with no credit history is through a secured credit card. This alternative to a traditional credit card requires a security deposit -- usually between $200‒$5,000 -- which may equal the amount of your credit limit and can be used to cover any outstanding balances if the account goes into default. Even if you only make small charges on your secured card, but maintain a low balance and pay it in full every month, it can help you to begin to build a positive credit history.
Avoid opening too many credit card accounts
Yes, having a credit card ‒‒ and making timely payments ‒‒ can help build your credit history, but opening up too many accounts may work against you when you’re trying to establish credit. By the same token, opening many accounts quickly could also signal risk to a lender and may even lower your average account age in your credit report, which may be an important factor in your credit score. Instead, do your research and find cards that align most closely with your lifestyle and spending habits.
Credit history isn’t built in a day. But with the help of the tips above, you can take the first steps to start building credit today.