Beat the Credit Catch-22

How to Get Credit With No Credit History?

Credit is the ultimate Catch-22. You can’t qualify for credit until you’ve proved yourself worthy with good credit history, but you can’t build credit history until you’ve qualified for credit in the first place. Despite the understandable exasperation these kinds of cyclical realities create, building credit is important and should not be ignored or put off. It’s better to start taking small steps towards building a strong history of responsible borrowing today than wait until you really need it to finance a major purchase like a home or to qualify for an urgent loan.

Despite the Catch-22, there are ways to build credit from scratch. These strategies can also be useful in rebuilding credit after a major credit faux pas, or with a history of poor credit usage.

Apply for a Secured Credit Card. Secured credit cards are easier to get because they are backed by a cash deposit that serves as collateral. Otherwise, the card should be treated just like a regular unsecured credit card. Make payments on time and in full to establish a positive credit history. Once you build up your credit, you can transition to an unsecured card, getting the deposit back on your secured card when closing the account. Note that secured cards come with more fees than unsecured cards, so as soon as you’re able to make the transition to unsecured credit, the better.

Get a Cosigner. If you want to avoid the fees associated with a secured credit card, you may be able to qualify for an unsecured card if you have a cosigner with a strong credit history willing to vouch and take responsibility for you. If you use the card irresponsibly though, you could not only hurt your own credit, but that of your cosigner too.

Become an Authorized User. Becoming an authorized user is another way to enjoy the benefits of good credit built up by friends or family members. As an authorized user, you get your own card and build credit history, but you aren’t personally obligated to pay for the charges. You should, however, come to an agreement with the primary cardholder as to what you’re expected to pay and how those payments will be made. Again, a failure to treat this credit line responsibly could hurt both you and the primary cardholder.

Pay All Bills On Time. The biggest component of a credit score is payment history. Even one late or missed payment can adversely affect your score, and it’s not just limited to credit card payments. If you become delinquent on your utility or cell phone bill for example, the bill can be sold to a collection agency, show up on your credit report, and hurt your credit score. Avoid an accidental oversight by setting up automatic bill pay or putting alternate systems in place to ensure your credit doesn’t suffer the consequences of late or missed payments.

Track Your Credit and Be Patient. It takes time to build a credit score from zero. If you use your starter cards responsibly though, eventually you’ll be able to build up your credit enough to qualify for better deals. Track your credit to stay motivated and ensure that your score isn’t suffering because of a reporting error or oversight. Even once you’ve built up your score to the 700s and 800s, it’s still good practice to keep an eye on your credit to make sure you don’t suffer any incorrect or unnecessary score plummets that leave you back at the start of your credit Catch-22.