Ghost Credit, No Credit ?

I Have no Credit – How to do I build a Credit Report?

Your credit score lets lenders know whether you are a high or a low financial risk. If you have a high credit score, it makes it easier for you to apply for credit, a low score means your application is either rejected or you have to pay a high interest rate. So what happens when you don’t have a credit history? The good news is that no credit score is better than having a low credit score and there are steps you can take to build up your credit history.

Your Credit History Determines Your Credit Score

The information recorded on your credit history is used to calculate your credit score. There are several factors that go into generating this number, these include the following:

  • Your payment history

  • Your credit utilization

  • Your credit mix

  • The length of your credit history

  • New credit applications

What these mean are not what I am focusing on, but it is clear that you need some history in order for a credit reference agency to generate a credit score.

What Are Lenders Looking For?

In short, they are looking for responsible borrowers. They are not looking for people who are financially secure enough to cover their expenses; instead, they want people who know how to effectively manage credit. They want to make sure that you will be able to repay the money they lend to you and the only way they can determine this is if you have a credit history.

How to Build a Credit History

Don’t worry too much if you don’t have anything on your credit file, everyone has to start somewhere. Think about it like this, the person with an 850 credit score once had no credit history but they worked to build one and so can you.

  • Apply For a Secured Credit Card: As long as you are 18 years old you can apply for a secured credit card with your checking account. Even though you don’t have a credit score, you do have a financial history with your bank account. The bank will take $300-$500 from your checking account and give you a credit card. Use the card for small purchases on things such as gas and groceries. Never spend more than 25% of your credit card limit and pay it off in full every month.

  • Get a Store Card: The credit limits on a store card are typically very low and so are their barriers for entry. The same applies with your credit card, make small purchases and pay the bill in full each month.

  • Become an Authorized User: This involves a parent, friend or relative authorizing you to use their credit card. You are given a card with your name on it, and you can spend what is available but you don’t have to make any payments. Your credit score will be based on the payment history of the person who has authorized you to use their credit card.

  • Get a Guarantor Loan: Your parents, a friend or a relative might be willing to assist you in building your credit history by being a guarantor on a loan. This means that even though the loan is in your name and all payments are recorded on your credit history, if you are unable to pay the responsibility will then fall on the guarantor and this can damage their credit score.

  • Take Out a Credit Builder Loan: These loans are established specifically for people who don’t have a credit history. Basically, even though you apply for a loan you are not actually given any money until you have repaid the loan. Your payment history is reported to the credit bureaus.

Take Away

Once you have secured a line of credit, it is essential that you make payments on time. As stated no credit is better than low credit. If you know you are not ready to become a responsible borrower, it is strongly advised that you wait until you are.

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