I wish I could tell you (like Dave Ramsey) how credit is unnecessary. However, our society runs on credit. It would be difficult to get an apartment, cell phone, or utilities without credit. And if you don’t have credit, you’ll be asked to get a cosigner. Sure, you can “save” money and build assets to never need credit, but that doesn’t meet your needs right now.
Credit is a tool. A tool is necessary for certain things but it isn’t needed for everything. Credit, as a tool, can be a hammer that builds the walls of your dream house or the sledgehammer that tears down the walls. Now, that my PSA is over, let’s get you to establishing credit.
4 Ways to Establish Credit
Without an established credit history, creditors are unable to assess your credit risk. Whether you’re an 18-year-old student or a 45-year-old divorcee, to establish credit with no credit history or cosigner, you can do the following:
Get a secured credit card
A secured credit card works like a regular (unsecured) credit card except it requires a security deposit. For example, a $500 deposit gives you access to a $500 credit limit. Secured credit cards are offered by many banks and credit unions. Inquire with the bank/credit union you currently have a banking relationship with about their secured credit card offering.
Note: Watch out for secured credit cards with application fees, annual fees, and monthly service charges. You have better options.
Learn more ways to get your first credit card without a credit history.
Get a department or retail store card
Some retailers have easier approval terms. The limits tend to be small such as $100 but by using the store card and paying the balance in full each pay period you’re establishing a repayment history.
Note: To create and maintain a good credit score, don’t buy more than you normally would with cash.
Get a secured personal loan
Many banks and credit unions offer secured loans. You’re required to deposit money into a savings account then a loan is issued in your name. They’ll disburse the loan proceeds to you, but you’ll be required to make monthly payments. Don’t spend the loan money. Instead, keep it in your account. Set up automatic payments for easier repayment to ensure you don’t miss a payment.
Note: Having a small personal loan can help you improve your score too. This is due to creating a different mix of credit on your new credit file.
Check out Self credit builder loan with no credit inquiry. They help people start or re-establish credit by reporting to all 3 credit bureaus while saving money in a certificate (CD).
Become an authorized user on credit card
If your parents, a spouse, or partner have good credit, then this option is viable. Becoming an authorized user means you’ll get the credit history of that particular card added to your credit file. You don’t actually need to get or use the credit card. However if they missed a payment or carry a balance from month-to-month, the negative aspects carry over to you too.
As an authorized user, you aren’t responsible for the payment of the debt unlike that of a cosigner or co-borrower on a credit card. If you’re an authorized user on a delinquent account (because the card owner missed a payment) you can request to have the authorized user account removed from your credit file through the credit bureau.
Note: Not all creditors report authorized users to the credit bureaus, so you’ll need to check with the card issuer.
Want other ways to establish your credit? Check the financial marketplace for credit builder loans and secured credit cards.
As you can see there are many ways to establish your credit without a credit history. I started my credit history with a retail card at Macy’s and then got approved for a credit card. With good credit, I was able to get a car loan without a cosigner.