How to build Credit with No Credit History

Establishing a good credit score is essential to achieving financial stability and accessing various financial products such as loans and credit cards. However, building credit can be challenging if you have no credit history. Many people struggle with building credit from scratch.

Your credit history is crucial when it comes to determining your creditworthiness. If you have little or no credit history, it can be challenging to get approved for loans or credit cards, which can limit your financial opportunities. This is because lenders use your credit history to assess how likely you are to repay debts, and without any history to review, they may be hesitant to lend to you.

Fortunately, there are ways to establish credit even if you have no credit history. One way is to become an authorized user on someone else’s credit card, as long as the lender reports authorized users to credit bureaus. Another option is to include your monthly bills, such as rent, in your credit file by using a service like Rent Reporters or Credit My Rent. These services report your payment history to credit bureaus, allowing you to build a credit history and boost your credit score.

Other methods of establishing credit include getting a secured credit card, applying for a credit-builder loan, or taking out a credit-builder account at a bank or credit union. It’s also important to make sure that you pay all of your bills on time, as missed or late payments can negatively impact your credit score.

Overall, establishing credit with no credit history can be a challenge, but it’s not impossible. By taking advantage of the various methods available and being responsible with your finances, you can build a solid credit history and increase your chances of being approved for loans and credit cards in the future.

This article explores various steps that individuals can take to build credit with no credit history, providing useful insights and practical tips for establishing a good credit score.

Easy ways of establishing credit with no credit history

1. Become an authorized user

Becoming an authorized user on someone else’s credit card means that you are acting as an additional cardholder though you are not liable to the payments made on the credit card either by you or the primary cardholder. The primary cardholder is the only one liable in this case.

Before becoming an authorized user you need to make sure:

1. The lender reports authorized users to credit bureaus; Experian, TransUnion or Equifax. These are the ones that generate your credit scores therefore when the lender does not report authorized users there is no way that you will be able to build your credit in this way.
2. Your primary cardholder has a long history of on time payments. If not then stay away because that will negatively affect you.
3. If you are the primary cardholder make sure the person you are linking their name to your credit card account is a very responsible person when it comes to using money. Remember you are solely responsible to the payments made on the card.

An authorized user: Is a person who has been given permission to use a credit card but is not liable for the charges they make to the credit card. They are not legally responsible for paying the bill. For example a parent can make their kid an authorized user to their credit card or you can make your spouse an authorized user on your card.

As an authorized user you also receive information like the credit card limit and available balance on the card. If your primary card holder lender reports authorized user to credit bureaus then you can build your history this way and this will go a long way in boosting your credit scores.

2. Get credit for the bills you pay for

Did you know that there is a way in which you can include the bills you pay in your credit file? Including your bills on your credit report can be a good way to build a credit history for those who don’t have enough credit history on their report to generate a credit score also known as a thin credit file.
There are several ways in which you can make the most of your thin credit file and use it to your advantage.

a) For renters

If you live in a house in which you pay rent monthly and on time then you should know that there are companies that offer to have your rent payments reported to the credit bureaus. This way you get to build your credit history and also boost your credit score. Some of these companies are;

Rent reporters: They report your rental payment history to TransUnion and Equifax which are two of the three credit bureaus in charge of generating your credit history. The sign up process is simple all you have to do is register and rent reporters got you.

Credit My Rent: They report to Experian and Equifax. It is easy to use once you sign up and you can also view your rental payment history online at any time.

Rental Karma: Like Rent reporters Rental Karma reports your rental payment history to TransUnion and Equifax.

Rent Track: This service reports resident’s rental payment history to all the three major credit bureaus: Equifax, TransUnion and Experian.

Level Credit: Has no sign up cost and allows reporting of rent, utility and cell service to credit bureaus.

Rent Report Team: Has a sign up cost of $29.99. Reports to all three credit bureaus and can increase your credit scores by 25 – 50 points.

There are several services that offer to report your rental payment to credit bureaus hence allows you to get credit for these on time payments all you have to do is find out which one suits you.

Note that reporting rental payment only affects your VantageScore credit scores and not FICO scores.

b) Experian Boost

Do you pay your streaming, phone, or utility bills through a bank account? If so, and you have limited or no credit with a positive payment history, then Experian Boost may be suitable for you. This service allows consumers to add their streaming, cellphone, and utility bills to their Experian credit report. Note that this service only affects your Experian credit report and counts only positive payment history.

How does Experian Boost work?

First, sign up for free on their website, then connect the account you use to pay your utility, cellphone, and video streaming services. Next, choose which positive payment histories from these services to add to your Experian credit report. Once the data is verified, you may see the results of Experian Boost instantly, which typically results in a 10+ point increase. You can link mobile and landline phones, internet, cable and satellite, water, gas, and electricity. Video streaming services you can link include Netflix, HBO, Disney+, and Hulu.

c)UltraFICO

UltraFICO was created in 2009 by FICO, Experian, and Finicity in an attempt to expand credit to more consumers. It helps in boosting your FICO score by evaluating your overall banking habits in addition to your credit history.

How does UltraFICO work?

First, sign up and provide your name, email address, company/employer, job title, and phone number. You will then grant Finicity permission to review data from your checking, savings, and money market accounts.

When you connect your personal bank accounts, it checks:

1. How long your accounts have been in use
2. How frequent and recent are your bank account transactions
3. Evidence of cash on hand
4. History of positive account balance

Note that UltraFICO is free, and to get your UltraFICO score, you have to apply for credit first.

3. Apply for a store card

If you frequently shop at a particular store, signing up for their store card can be a great way to build credit. While it may be easier to qualify for credit cards offered by stores compared to traditional unsecured cards, it is important to note that they tend to charge higher interest rates than other cards.

4. Credit builder loans

Having a good credit score makes it easier to qualify for loans and credit cards. Your payment history contributes 35% to this score. Therefore, if you want to build credit with little or no history, credit builder loans can be another great way to do this.

How do credit builder loans work?

When you get approved for a credit builder loan, the amount you borrow is held in a bank account while you make payments over a fixed period of time to help build your credit. Note that you can’t access the money you borrowed until you have fully repaid the loan. Once you have fully repaid the loan, you get all the money back. This way, you can build your savings and credit at the same time.

5. Get a secured credit card

A secured credit card works like any other credit card, but it requires a cash deposit from the cardholder as collateral, which serves as the credit limit and provides security for the card issuer in case the cardholder can’t make payments. By making timely payments, the card issuer reports to all three credit bureaus (Equifax, TransUnion, and Experian), which helps build a credit history and improve a credit score.

6. Get a co-signer or open a joint account

If you have little or no credit history, a credit card issuer may consider you too risky to lend to and deny your loan application. In such cases, a co-signer can help you get approved for a loan you would otherwise not qualify for. A co-signer is held responsible for the debt in case you fail to pay, making them a safer bet for the credit card issuer. When opening a joint account, it’s important to find someone with a good credit score and payment history to increase your chances of approval.

Other ways to improve your credit score include:

1. Keeping old accounts open: The age of your credit accounts contributes 15% to your FICO credit score. Closing old accounts can affect your credit utilization ratio, credit mix, and credit history length, which together contribute 55% to your FICO score.
2. Keeping your credit utilization ratio in check: Your credit utilization ratio is the percentage of your credit limit that you use. A lower ratio is better, and it contributes 30% to your credit score. Aim for a 30% credit utilization ratio or lower.
3. Diversifying your accounts: Having different types of credit accounts (e.g., credit cards, loans) contributes 10% to your FICO score.
4. Avoiding late payments: Paying your bills on time shows lenders that you’re a responsible borrower. A long history of on-time payments can positively impact your credit score

Building a good credit score is important for accessing loans, credit cards, and other financial services at favorable terms. While it may seem daunting, there are several ways to start building credit, even with limited or no credit history.

Some of the ways discussed in this article include applying for a secured credit card, signing up for a store card, getting a credit builder loan, and using services such as Experian Boost and UltraFICO. It’s also important to keep old accounts open, diversify your accounts, keep your credit utilization ratio in check, and avoid late payments.

By following these tips and being responsible with your credit, you can build a strong credit history and improve your credit score over time.