When was the last time you checked your credit score? If you don’t have a lengthy credit history, checking your score may not be one of your priorities, but it should be. Keeping track of your progress is important.
Calculating your credit score may be complex, and it has an immense impact on your ability to secure a loan, as lenders typically consider your credit score before approving or denying a loan you’ve applied for.
If you have a good credit score, you’re generally more likely to be approved for private student loans, a car, or even a house. A poor credit score signals that you may be unable to pay back the money you’re loaned.
What Happens If You Don’t Have a Credit History?
If you’ve never used credit, or if you have in the past but haven’t touched your lines of credit in years, you may not have a credit score at all. A lack of credit history will not result in a low credit score. Instead, you won’t have a score until you have a credit history for your score to reflect.
Fortunately, you can take several steps to build your credit history. Here are a few responsible ways to start establishing credit.
1. Apply for a Secured Credit Card
Applying for a credit card without credit history can create an issue. After all, a credit card is the most efficient way to build or improve credit, but many lenders will reject applications that lack a good credit history.
A secured credit card allows you to pledge funds as security. These cards require a cash deposit or other collateral of varying amounts to “secure” funds against your total credit limit. After you prove that you can make your payments in full and on time, your lender may offer you an unsecured card with a higher credit limit.
We offer a Secured Visa® card with no annual fee, competitive interest rates, and a quick application process. Apply today so you can begin building credit responsibly.
Whatever credit card you choose, make sure you’re informed about the benefits and costs of the option you select. Understanding how credit cards work and knowing your unique needs are both essential to choosing the right card.
2. Use Your Credit Card to Pay Monthly Utility and Cell Phone Bills
While utility companies and phone service providers don’t have to report your payments, if paid using a credit card, they could help you build your credit history.
If you can pay your balance fully and on time, using your credit card for these minor purchases can help build your credibility with potential lenders. It shows that you’re able to use your card responsibly and helps you develop and demonstrate a habit of making on-time payments.
Whether this strategy is a good option for you depends on whether your utility or cell phone company charges a fee when you use a credit card to pay your bill. You’ll want to avoid this method if using your credit card to pay will raise the cost.
3. Discuss Becoming an Authorized User on a Family Member’s Credit Card
If you don’t have your own established credit history, becoming an authorized user on a family member’s credit card is a great way to build your own credit. This gives you the ability to use and make payments on the account. The account is added to your credit report and, as a result, your score reflects the payment status of the account.
Since your family member’s payment history appears on your credit report, and vice versa, it’s important that you choose a responsible family member who understands the importance of making their payments on time and that you commit to responsible use of the account so you don’t damage their credit, either.
4. Use Credit Cards Responsibly
To help build a solid foundation for your credit, use credit cards responsibly by making full payments on a limited number of cards.
Amount owed on debts accounts for 30% of your credit score, which means it’s important to maintain low balances on your credit cards. If you carry a balance on your credit card(s), not only can your credit be negatively impacted, but you’ll also accrue interest over time, adding to your debt. The more you allow this to happen, the harder your debt may become to manage.
Additionally, it’s important to not open too many cards at once. Rapidly applying for more credit can make potential lenders hesitant to lend to you. This is because you don’t have a payment history established on these cards to prove that you can manage the payments.
5. Have Someone Cosign on Your Card
Another way to build credit with no credit history is to have someone you trust cosign on a credit card application. When a parent or another responsible adult with a good credit history cosign on a card, they’re promising to take care of any payment problems that may arise with the card. If someone with a good credit score agrees to cosign, lenders are more likely to accept your application, allowing you to open the credit card account and begin using it to establish credit.
6. Maintain a Steady Income
Your employment status doesn’t directly affect your credit score. However, getting a job can provide you with a steady income that enables you to make payments on your credit cards, loans, and other debts. Prompt, full payments make a positive impact on your credit history.
Additionally, lenders may ask for income information in addition to checking your credit. Proving that you have steady employment can help demonstrate to lenders that you’re safe to lend to and may make it easier for you to be approved for credit.
Learn More About Building Your Credit
When you understand how credit works, you can make informed decisions that help you build credit and improve your financial well-being.
For more tips on money management, visit our Online Learning Center today.
The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.