No Credit? Here Are 3 Ways to Start Building Some

In order to have good credit, you need to build up a positive credit history. For some people, that means starting from scratch.

If you have bad credit, it’s probably due to some combination of two things: You don’t pay your bills on time and/or you’ve taken out to much debt. But if you have no credit, it’s only due to one thing: You don’t use any credit at all!

Whether you have bad credit or no credit, the result will still be the same when you try to borrow money: Instead of being able to take out a standard personal loan from a bank or online loan company, you’ll be forced to rely on predatory no credit check loans and short-term bad credit loans like payday loans, cash advances, and title loans to cover unforeseen expenses.

And while focusing instead on bad credit installment loans might be a good short-term solution to that problem, the real fix is simple: You need good credit. When you have no credit, that means starting to build your credit history from scratch.

The problem you’ll run into is of the chicken-and-the-egg variety: You need a good credit history to borrow money at reasonable rates, but you need to borrow money first in order to create that history. Luckily, there are some ways that you can start building that credit history now so that you can qualify for better types of personal loans later. Here’s how …


1. Take out a secured credit card.

In order to qualify for a traditional credit card, you’re going to need decent credit. But in order to qualify for a secured credit card, all you’ll need is cash. Unlike traditional cards, secured credit cards require a cash deposit to serve as collateral and to set your total credit limit. For example: Put down $500 and your card will have a $500 limit.

Once you’ve opened this secured card, you can start using it to make small purchases. Make sure that you aren’t using the card to spend beyond your means; simply take purchases that you would have made on your debit card and make them on your secured credit card instead. And make sure that you are paying off that card’s balance as quickly as possible.

To the best of your ability, try to never let your outstanding balance reach 30 percent of your total credit limit. This doesn’t mean you have to spend less than 30 percent of your limit every month, it just means paying off your card frequently instead of monthly. Keeping your credit utilization ratio below 30 percent will help your score.

While secured credit cards can be a great way to build your credit score, there are two things you should keep in mind. First, you need to make sure that the credit card company reports your payment information and balances to the credit bureaus. Second, secured credit cards can come with some pretty outrageous fees, so do your research first to find a card that’s reasonably affordable.

2. Ask someone to “lend” you their score.

If you don’t have any credit—or you have bad credit—you can help build your score with a little help from your friends. How does that work, exactly? If you become an authorized user on one of their credit accounts or they cosign a loan for you, they are basically lending you their good credit to help you build their own.

When you’re an authorized user on another person’s credit card, your name is on the account. This means that any activity on said account—like payments and outstanding balances—gets recorded on your credit report as if that activity was your own. Even if you don’t have any actual access to the account, you’ll still get credit for it—literally.

When someone cosigns for you on a loan or credit card application, it’s the credit equivalent of them vouching for you as a borrower. This can help you qualify for a better loan or credit card, but there are some sizable potential downsides: Late payments and large balances will drag down your friend’s score, and they’ll be liable if you end up defaulting entirely.

When possible, you should opt for being an authorized user over getting a friend to be your cosigner because there is much less risk that you’ll jeopardize your relationship. You can become an authorized user on your friend’s credit card without ever actually using the card at all. In fact, you should definitely avoid using the card at all.

Asking friends and family for financial help can be tricky, so you’ll want to broach the subject with them in a calm and cautious manner. This is especially true if you’re asking them to be your cosigner. Gaining access to someone’s account or asking them to be liable for your own financial behavior requires a lot of trust, and it’s vitally important that that trust is maintained.

3. Take out a credit-building loan.

If you’re looking for a traditional personal loan from a bank or credit union, you’re going to need good credit. But there are other kinds of loans you can borrow that are designed for people like yourself who need help improving their scores. The key is to look local.

While large national banks are unlikely to have lending options focused on helping customers build their credit, local banks and credit unions are different. They tend to have more customer-friendly mentalities that extend to issuing small loans to customers with little to no credit.

This is especially true for credit unions, which are nonprofit institutions. In order to qualify for one of their loans, you’ll first need to become a member. Membership in credit unions can be based on where you live, where you work, or even where you go to church.

As mentioned earlier in this article, it’s critical that you don’t use this loan to spend beyond your means. Instead, only use it to purchase something that you can already afford. While paying the loan off slowly means racking up a little bit of interest, the positive payment history it will help you build can be worth it in the long run.

Earlier in this article, we mentioned bad credit installment loans as a possible option for borrowers with little to no credit history. Some companies that offer these loans—like OppLoans—report payment information to the credit bureaus, which means that paying your loan off on-time could help you build a better score.

Again, you wouldn’t want to borrow one of these loans solely for the purposes of building your credit. But if you find yourself needing to borrow money to cover a financial shortfall, taking out a loan that will help you improve your credit history is certainly a factor worth considering.

There’s more to money than credit.

Improving your credit score will help brighten your financial future in any number of ways. But that doesn’t mean that your credit score should be your only financial priority. Building up your savings, investing for retirement, and creating a budget are all important financial building blocks as well.

To learn more, check out these related posts and articles from OppLoans:

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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.