Tips to Build Your Credit

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How Can I Build My Credit If I Have No Credit?

Having a credit score is necessary for major transactions such as leasing or financing a car, house, or apartment. If you have never made a credit card purchase, never paid off a car loan, or never taken out a mortgage, you won’t have much of a credit history for lenders to base their decisions on. You may not have any outstanding debt, which is good, but financial institutions and lenders need to see how well you manage payments on the money you’ve borrowed. It’s a catch-22 of sorts. You need to have a credit history to borrow money, but you need to borrow money to build your credit history.

What Is Considered a Good Credit Score?

Your credit score is based on any time that you borrowed money and paid it back, and that information is then sent to the three major credit bureaus: Equifax, Experian, and TransUnion. Factors that influence your credit score include how many accounts you have open, how many old accounts you have, your total amount of debt, and your repayment history. While most credit scores are between 600 and 750, a good credit score is generally 700 or above, and 800 or above for excellent.

Vern Eide Credit Score Graphic

Build or Improve Your Credit Score

Start by going online and checking your credit score for free. There are numerous websites that provide a credit check free of charge and it will give you an idea of what you’re working with. If you have a low credit score (or none at all) don’t stress. Vern Eide has a few tips to help build your credit and get you on the right path to buying your first house or car.

1. Avoid Late Payments

This first tip is also the most important because if you don’t make your payments on time nothing else matters. Lenders want to see solid proof that you are able to borrow money and pay it back on time. A pattern of late payments can lead to a lower credit score and then you will have to concentrate on improving your credit score instead of building credit.

2. Apply for a Credit Card

Applying for a credit card is the easiest way to build your credit, when done correctly. Your ability to make monthly payments on a credit card will demonstrate your creditworthiness and gradually start raising your credit score. Build your credit with one of these credit card options:

  • Secured Credit Card: With a secured credit card from a bank, your credit line is the amount of money you deposit when you open the account. This is a great card type for beginners and if you make your monthly payments without having to use the security money, it will pave the way to applying for a regular, unsecured credit card.

  • Store Credit Card: A branded credit card from a retail store or gas station is another smart option for beginners because the application process is less strict and since there are limitations on where you can use the card it will keep you from overspending. A good rule of thumb is don’t buy more than you would with cash and pay off the whole bill at the end of each month.

  • Authorized User on Someone Else’s Card: If you are unable to get a credit card on your own this option might be for you. Ask a parent, relative, or close friend with good credit to make you an authorized user on their account. Even though this person is the primary cardholder that handles the monthly payments, your borrowing can help establish a positive credit history.

  • Student Credit Card: Students with a co-signer and proof of employment can apply for a student credit card. Although these cards tend to have low limits and high interest rates, student credit cards can help young borrowers build credit before entering the workforce. These cards should only be used for small purchases and emergencies, and you need to make sure you have enough money to pay the monthly bill.
Vern Eide Student Credit Card Image

3. Apply for a Credit Builder Loan

This type of loan is designed specifically to build your credit. You borrow a small amount of money—oftentimes from a local bank or credit union—and that sum will be put into a savings account. Your lender will notify the credit bureaus as payments are made and after the loan is paid off you will receive the lump sum.

4. Report to the Credit Bureaus

Paying your rent, insurance, and utility bills on time will help build your credit score, but if you don’t report these payments to the credit bureaus you won’t receive the recognition needed to boost your credit score. A simple online search will provide you with companies that offer reporting services. It is also smart to ask your phone, cable, electric, and gas companies if they report to the credit bureaus.

Vern Eide Paying Bills Graphic

Steps Toward a Positive Credit History

Your credit score is an important number that lenders use to determine your reliability as a borrower and a lower score could mean higher interest rates (or no loan at all). Stick to the credit building tips above and you will be on the fast track to a solid credit history. And when it comes time to lease or finance a new vehicle, Vern Eide will be here to help with our knowledgeable finance specialists and online credit application.

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