Introduction
Establishing credit can be a difficult process for those who have never done it before or those who have had trouble managing credit in the past. Before delving into the steps required to build credit from scratch, let’s define what credit is. Credit is an agreement between two parties that allows one party to borrow money or goods from the other party in exchange for repayment of the debt plus interest.
Starting credit with no credit is a challenge but not impossible. This article will provide eight steps which can help individuals begin building credit without any prior credit history.
Establish a Secured Credit Card
A secured credit card is a great option for individuals looking to establish credit with no credit. A secured credit card requires a cash deposit which acts as collateral for the lender. The amount of the deposit generally matches the limit on the card. For example, if a person puts down a $500 deposit, they will receive a secured credit card with a $500 limit.
The benefits of a secured credit card include reporting to all three major credit bureaus, helping to build credit over time, and providing a way to make purchases without having access to unsecured credit. If a person pays their balance in full each month and makes their payments on time, they can establish good credit.
To obtain a secured credit card, individuals should research different options and compare terms, fees, and interest rates. Once they have chosen the best option, applicants must submit an application along with a security deposit. After submitting the application and deposit, the issuer will review the application and send out the card once approved.
Become an Authorized User on Someone Else’s Credit Card
Another option for individuals looking to start building credit is to become an authorized user on someone else’s credit card. An authorized user is someone who has been granted access to use someone else’s credit card. They are not responsible for making payments but their activity on the account will appear on the primary cardholder’s credit report.
The benefits of becoming an authorized user on someone else’s credit card include having their payment history reported to the three major credit bureaus, improving their credit score, and having access to funds without being responsible for repayment. To become an authorized user, applicants should contact the primary cardholder and ask them to add them as an authorized user on their credit card.
Open a Savings Account
Opening a savings account is another way for individuals to start building credit with no credit. Savings accounts are a great way to save money and earn interest. Having a savings account can also help individuals avoid credit problems by providing a place to store their money and resist the temptation of using credit cards to buy items they cannot afford.
The benefits of opening a savings account include earning interest on the money deposited, having access to funds when needed, and building credit. To open a savings account, individuals should research different banks and compare interest rates, fees, and other features. Once they have chosen the best option, applicants must submit an application and provide the necessary documentation. After submitting the application and documents, the bank will review and approve the application.
Get a Student Credit Card
Student credit cards are a great option for individuals looking to build credit with no credit. Student credit cards are specifically designed for college students and offer lower interest rates and fees than traditional credit cards. Student credit cards also tend to have higher approval rates which makes them ideal for individuals with no credit.
The benefits of a student credit card include earning rewards points or cash back, having access to funds without having access to unsecured credit, and building credit. To obtain a student credit card, applicants should research different cards and compare terms, fees, and other features. After choosing the best option, applicants must submit an application and provide the necessary documentation. Once approved, the card will be sent out.
Make Regular Payments on Time
Making regular payments on time is essential for individuals looking to start building credit with no credit. Payment history accounts for 35% of an individual’s credit score, so it is important to make sure payments are made on time every month. Even one late payment can damage an individual’s credit score.
The benefits of making regular payments on time include improving an individual’s credit score, avoiding late fees, and avoiding damage to their credit report. To ensure regular payments are made on time, individuals should set up automatic payments or reminders. They should also check their credit reports regularly to ensure accuracy.
Join a Credit Union
Joining a credit union is another way for individuals to start building credit with no credit. Credit unions are similar to banks but are owned by their members. Credit unions often offer more competitive interest rates and lower fees than banks. Additionally, credit unions may be more willing to work with individuals who have no credit or low credit scores.
The benefits of joining a credit union include having access to funds without having access to unsecured credit, improving an individual’s credit score, and saving money on interest and fees. To join a credit union, applicants should research different options and compare terms, fees, and other features. After choosing the best option, applicants must submit an application and provide the necessary documentation. Once approved, the credit union will issue a membership card.
Conclusion
Starting credit with no credit can be a daunting task. However, with the right strategies, individuals can begin to build their credit from scratch. This article provided eight steps for individuals to start establishing credit with no credit including getting a secured credit card, becoming an authorized user on someone else’s credit card, opening a savings account, getting a student credit card, making regular payments on time, and joining a credit union.
By following these steps and maintaining good financial habits, individuals can start building credit with no credit. With patience and dedication, they can develop a strong credit history and improve their financial situation.
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