When it comes to credit reports, everyone starts from scratch. But it doesn’t matter if you don’t have credit. What matters is that you get to good credit as fast as possible. If you learn how to build credit in the shortest amount of time possible, you will greatly improve your life and make it a lot less stressful.
I’m having trouble qualifying for a loan or credit card. What do I do?
Establishing credit for the first time can be challenging. If lenders believe that you represent too big of a risk, they may not want to do business with you. Fortunately there are several methods available to help you establish credit from scratch, even if you don’t have a credit report.
Here’s what you can do:
- Get a secured credit card – This is the most popular way to build credit from scratch. A secured credit card requires you to place a deposit with the issuing bank equal to the amount of your credit limit. The risk to the lender is very little.
- Credit builder loans – Banks will sometimes offer these small loans to their customers. The borrowed amount is put in an account controlled by the lender. The borrower has no access to these funds until the loan is repaid.
- Authorized user accounts – If a family member is willing to add you as an authorized used to his or her credit card, then you’ll enjoy both the benefits of having a credit card and the chance to build credit history. But although you’re not legally obligated to pay for your charges, you shouldn’t go wild with it. If everything goes well, the account and its age will appear on your credit report. And because the main account holder is responsible for all for all debt obligations, your score won’t fall even if the main user fails to pay his bills.
Your credit score doesn’t actually start from 0
Many people believe that your credit score starts from 0, but that’s not true. When you get your first loan, or your first credit card, you’ll have credit history. But you won’t have a credit score. That only comes six months after having a line of credit. And it won’t be that perfect 850 everyone dreams of. If you use your credit card wisely and make all your payments on time, your credit score could be over 700. This means you have good credit. But it’s not excellent credit, and that’s what you should be aiming for.
Great credit scores come with age
There’s one thing that people with great credit scores have in common, and that’s age. According to a 2011 report from SubscriberWise, about 0.2% of credit card users have a credit score of 850, and their average age was 61. These borrowers had credit card files that were 30 years old, on average.
Your first credit card will not bring with it a perfect score, no matter how hard you try. But this doesn’t mean that you should give up. You can reach that 850 if you make building credit a long-term goal. By keeping accounts open, by using less than 30% of your credit limit and by paying everything on time you can improve your score and live a happy and healthy financial life.