How To Establish Credit Without History
By Eddie V. —
Published April 23, 2018
Credit history is an important factor in helping you apply for a loan. Credit history is an indication of an individual's reliability when it comes to paying off a loan. A good credit history increases the chances of getting approved for a loan.The lack of credit card history can make it difficult for you to apply for a credit card or any other loan.Building a credit history is a tricky process while the lack of one can be challenging. The question is, how can someone build a credit history right from scratch, especially in a situation where no one is willing to give you credit.Here are some effective ways to build your credit history from scratch.Secured credit cardsSecured credit cards are the best shot for someone who has decided to establish credit history from scratch. In case of such credit cards, a cash deposit is used as collateral so that even if you fail to make your payments, it can be compensated. Secured credit cards work just like normal credit cards. You can use it for purchases and you will be required to make monthly payments on or before a due date. An interest is accrued if you fail to pay your balance in full.Credit builder loanCredit builder loans are designed to help people build their credit. Credit builder loans are provided by community banks and credit unions. An individual's payments are reported to credit bureaus and the pattern of payments help in determining whether the individual should be granted a loan in the future.
Store credit cardsStore credit cards are provided by department stores to their consumers. The primary purpose of store credit cards is to help consumers in saving money, but they are also an indicator of how responsibly a consumer can handle money. The only drawback is that store credit cards are notorious for charging extremely high interest rates.Student credit cardsThese credit cards help students a chance to establish credit despite the fact that they have lower credit limits. Often, they come with promotional offers although student credit cards are known to charge high interest rates.Getting the help of a co-signerYou can get an unsecured debt with the help of a co-signer. A co-signer signs a contract that holds them responsible for paying off your debts in a situation where you are unable to make the payments yourself.Savings accountsEstablishing a savings account is useful in many ways. Firstly, a savings account is a good way to prove to lenders that you are capable of managing your money responsibly. Secondly, active payments from your side can help you apply for a loan through your bank. A bank is one of the best places to start when you are establishing your credit score from scratch.Receiving authorization to use someone else’s credit cardIf a credit holder is willing to sign you as an authorized user, you can access the card and use it to establish your credit history. This is beneficial in that you would not be legally obligated to pay off the charges incurred on the credit card. It is best to create an agreement on how you will use the credit should you be signed as an authorized user.Establishing credit history through rental paymentsYou can make use of rent reporting services to record your monthly payments on a credit card report. If you have a history of on-time payments, this will reflect on your credit card report. Certain credit card companies consider such reports and may be willing to grant you a loan on the basis of this report.