Your FICO credit score, the score used by most lenders to determine if they’ll extend you credit, is made up of information about your credit history. In short, you need to have had good credit to get more credit. It seems fairly obvious that if you have a bad credit history it will be harder to get more credit, but what if you have no history at all?
You can get stuck in a situation where you can’t get credit because you’ve never had it. So how does one establish a credit history, then?
When you don’t have credit, a lender will look at other factors to determine if they want to loan you money. While these won’t establish a credit history for you, they can help you get that first lender to take a chance.
- Employment history: If you’ve held a steady job for a substantial amount of time, lenders will look more favorably upon you. On a related note, the higher your income, the better your position will be as well.
- Residency: Just like having a steady job, having a steady home helps, too. If you move around frequently, a lender might wonder why.
- Utilities: Having water, gas, electric, phone, or cable bills in your name will help to establish a payment history. Showing a positive track record for paying bills on time can go a long way.
- Bank accounts: Some lenders may be interested to see that you have had a checking and/or savings account established for a period of time. Showing an account history that points to successful money management could work in your favor.
It will be hard to get bank to give you a mortgage right out of the gate, so you may consider applying for more accessible credit first to help build a foundation. Don’t try to open them all at once or you risk looking like a risk. Pick one to start and then build from there.
- Department store card: The interest rates are typically high and the limits are low. They also won’t help you buy things the store doesn’t sell. But they will show a payment history and appear on a credit report. Used wisely, these can be a great first step.
- Bank issued credit card: Many banks offer credit cards and lines of credit. If you have a checking and savings account with a particular financial institution, this bank may be more willing than an unfamiliar one to loan you money.
- Secured credit card: A secured credit card is a little different in that you are backing up your purchases with your own money. You’ll put a deposit into a bank of perhaps $200 or $500. You’ll then be able to use the secured card like a credit card. If you miss a payment, the bank will take your deposit. But if you pay timely, you’ll build up that positive credit history that will allow you to open a regular credit card.
Maintaining credit is just as important as establishing credit, so handle your finances responsibly.
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