Having a good credit history is essential to expanding your future borrowing and buying power. As you look to finance larger purchases, how you’ve handled credit in the past will be a key factor in which lenders are willing work with you and how much they’ll let you borrow. Those with no credit history are often unable to get loans because lenders are concerned about taking a chance on someone they aren’t sure can pay back the loan.
If you have no credit history, here are a few things you can do to start building one.
- Start with one card or loan. Opening multiple credit cards and loans at once will not help your situation. Having a short history with many open cards will make you appear as though you’ve taken on too much and you’ll look risky to lenders.
- Don’t max out your credit card. Even though a credit card may have a high limit, this doesn’t mean you should use it all. Ideally, borrowing no more than 30% of your available credit will look best on your credit report.
- Only borrow what you can pay back. If your situation is such that you can’t pay back that much, don’t even use up to the 30%. Not being able to pay back what you borrow is the fastest way to take you from no credit history to a bad one.
- Pay your bills. If you borrow money and the bill is due, pay it. It’s that simple.
- Pay them on time. Making late payments will hurt your score. Of course, paying your bills is better than not paying them, but not paying on time as agreed. Late payments will appear on your credit report. Avoid them.
- Carry a balance responsibly. While it’s best if you can pay your cards off in full every month, sometimes that’s just not possible. There’s nothing wrong with carrying a balance if you do so in a way that helps your score rather than hurts it. Again, stick to that 30% threshold and try not to carry too high of a balance. Pay more than the minimum due if you can. Paying the minimum will help you avoid a late payment (and the associated fees to go with it), but paying more than that will help you lower that outstanding balance more quickly.
- Let your cards build history. Remember, length of history is important. As time goes by, plan to keep your oldest credit card. You don’t have to continue to use it, but avoid closing it. You’ll have a higher amount of available credit and you’ll also show that you can have credit available without touching it, solidifying you as a responsible borrower.
If you need auto financing but your credit is keeping you from getting approved, CreditYes can help! We can match you with a dealership in your area that will be with you every step of the way. Our service is fast and free. Fill out our secure online application and get behind the wheel of your next car today!