No Credit History? Establishing Good Credit

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If you have no credit history, there are several ways to start establishing credit. The first thing to do is open a checking account at a local bank. This will lay the foundation for future credit requests with the bank. Once you have deposited several paychecks, if you have any surplus funds open a savings account at the same bank. This will be the vehicle you use to start obtaining credit.

Establishing Credit

You have begun to build a relationship with your bank by opening 2 accounts. You can start to establish credit by using your savings account as collateral for a secured loan. Tell one of the bank’s loan officers you have a savings account you want to use to secure a loan. Since this account is already at their bank, the loan officer should approve your request. 

You will have to fill out a loan application, so the loan officer can verify your employment. They will check your credit history, which will show you have no credit. Since you are securing the loan with your savings, the loan officer will lend you a specific percentage of the account. The exact percentage depends on the bank’s lending guidelines.  

Once you have closed on the loan, the bank will report your information to the major credit bureaus and you will now have one piece of established credit. Be sure to make the payments on time, to maintain a good credit rating. To further improve your credit score, payoff the loan early if you did not use all of the proceeds.

Use a Co-Signer

Even though you have now begun to build your credit, many lenders want to see more than one piece of credit. If you need to buy a car, you can use a co-signer if you are not able to get approved on your own. Both you and the co-signer will complete a credit application, and if your signer has stable employment and a solid credit rating you will probably be approved the loan.

Each month that you make a payment, your credit rating improves. If you miss a payment, your credit rating will quickly drop, so be sure to pay on time or early if possible.

Apply For a Credit Card

Now that you have a paid loan and a car loan you are paying on time, you can apply for a credit card. If you still need a co-signer, you can request that they be released from the credit card after you have paid it on time for 6 months.

Another option for a credit card is to again use your savings account as collateral. Ask your loan officer to establish a line of credit for your credit card, based on the amount of funds you have in your savings account. As long as you pay the card on time, you will be able to use it until the bank offers to increase your credit limit because of your excellent repayment history. You can then ask for your savings account to be released, because you now have solid credit.