Bad Credit Boot Camp

An OppLoans Guide to Understanding Your Credit, Credit Report, and Credit Score.


Chapter 2. How to build credit when you don’t have any

If you’ve never taken out a loan, had a credit card or put utilities in your own name before, you probably don’t have much of a credit history. You might think this is a good thing – no credit usually equals no debt, after all – but in some cases, having zero credit can be just as hard has having terrible credit. Lenders are hesitant to loan money to someone with no credit history because there’s no way for them to know whether or not you’ll be able to pay it back in a timely fashion. However, if you’re in this situation, don’t panic. When it comes to credit, everyone starts from nothing, and there are plenty of easy ways to build credit without too much risk.

Secured Credit Cards

Signing up for a secured credit card is one of the easiest ways to build credit if you have none. Pretty much anyone, regardless of their credit score, can sign up for a secured credit card so long as they pay a cash deposit, which will serve as both collateral and, in some cases, set your credit limit. Depending on the card, your deposit amount can vary, but in general, your credit limit will be about double what your deposit is. In other words, if you deposit $50, your credit limit will be $100. Some issuers require the entire line of credit as a deposit – so if you want a $400 credit limit, you’ll need to make a $400 deposit – but some only require a fraction of the overall credit limit, it all depends on the issuer.14

Not every bank offers secured credit cards, and not all secured credit cards are created equal. There are a lot of good ones out there, but be aware that many charge a plethora of fees, from application fees a required monthly insurance policy that can really drive up the price of card membership. On top of that, most secured cards have an annual fee and can carry some pretty hefty interest rates.

In order to use a secured credit card to build credit, you will need to pay it off in full every month. Several months of on time, full payments will significantly improve your credit score, and due to the high-interest rates most of these cards carry, you probably won’t want to keep any kind of balance on one.

“You want to start by either applying for a secured card or a store card. It does not matter what the credit limit is, so do not stress over that. Make sure when you get a new credit card account you use it and pay it on time. Keep the balance below 10% or less of the credit limit. You should treat the credit cards as an investment into your credit future.”

-Credit expert Jeane Kelly-

Lucy Luzarony Josiah Nelson – 

“Secured cards offer the advantage of almost guaranteed approval, but the downside is that your money will be tied up for a long period of time. Look for cards that “graduate” after a year or so. Graduating means they give you your deposit back but you keep the card & credit limit. Some secured cards that graduate are Bank of America, Discover and Capital One.”

< back | next >