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How to build a credit history when you have no credit score

Man in living room using laptop and holding credit card smiling

With no credit history, a secured credit card may be the only way to build a credit history as long as it is reported to the major credit bureaus.

 
Question: I was denied the Fingerhut credit due to lack of credit information. It has been years since I had credit and now have no credit score. How can I build or who do I deal with to retain a credit score again?

Answer: I am guessing the reason Fingerhut did not approve you was that you have no credit score. Your situation is not the same as having bad credit. The challenge here stems from having no credit history to calculate a credit score. The credit scoring formula needs at least 6 months of recent payment history in order to calculate a credit score.

Being in the position of having to build a credit history limits your options even though I believe having no credit score is better than having a bad credit score. The only way to build a credit history is to use credit and the main ingredient in building good credit is to manage it wisely. You can do that with a secured credit card.

1. Unsecured Credit Cards

Open a new credit card account. Because you have little or no credit history, you may not get the best APR (annual percentage rate). However, if you charge gas, groceries and things you would normally purchase and pay off the balance each month, you won’t be paying interest each month so the high APR won’t affect your bottom line. Credit One Bank offers unsecured credit cards for people who need to build credit.

2. Secured Credit Cards

Have you considered secured credit cards? The OpenSky® Secured Visa® Credit Card may approve you because their credit line is based on a security deposit rather than a credit score. Secured cards are an excellent choice to build or rebuild your credit history. Another secured credit card issued by One United Bank is the UNITY® Visa – The Comeback Card™. I really like this secured card because for the first 6 months the rate is 9.95% and after 6 months the rate goes to a competitive 17.99% fixed rate.

Your bank or local credit union may offer secured credit cards also, however they may require a minimum credit score to get approved. Secured credit cards can help establish a positive credit history if the bank or credit union reports the account to the major credit bureaus. Be sure to verify if they report because not all banks and credit unions will report to each major credit bureau. Once you have established a good payment history for about 9 months with your secured card you will be able to apply for unsecured credit cards.

3. Demonstrate you manage credit wisely

Building credit means consistently demonstrating your ability to pay back any money you borrow. Only charge purchases that you can afford to pay off in full every month. That way you stay out of trouble if a financial crisis occurs. But be sure to use your card. It’s not enough to open a credit card and let it sit in your wallet. If you don’t use your credit card, you’re not demonstrating anything. Use your card at least once a month for small purchases like gas or groceries.

4. Pay on time every month

The most important thing you can do to build and maintain a good credit score is paying all of your bills and debt obligations on time every month. ALWAYS make all payments on time. This applies to credit cards, loans, mortgages, everything. Even one late payment can significantly damage your credit score.

5. Avoid applying for numerous accounts

Each time you apply for a credit card or loan, your credit score decreases a small amount. Only apply for 1 or 2 cards because there’s no point to chipping away at a credit score you’re trying to build up, especially when you haven’t yet demonstrated that you can handle just one credit card.

6. Treat a secured card like an unsecured card and maintain low balances

Keep credit card debt low. Use your card regularly, but don’t spend money you don’t have. Stay well under your credit limit. You’ll be scored favorably if you keep below 30% of your total credit limit. Even though you are required to put down a security deposit, a secured credit card is just like a “regular,” or unsecured credit card. Your credit limit is often the amount of your security deposit. Your purchases are not deducted from your security deposit. Therefore, each time you charge something, you are effectively borrowing money from the credit card company and are obligated to repay that debt. As a result, how responsibly you use a secured credit card will affect your credit score – both positively and negatively.

7. Get a cosigner on an unsecured card

There is a way to bypass a secured credit card and go straight to an unsecured credit card. You’ll need a cosigner. But keep in mind your cosigner’s credit will be damaged if you don’t use your card responsibly. Always pay on-time and never max out an unsecured or secured credit card.

8. Become an authorized user

A family member may be willing to add you as an authorized user on his or her credit card. As an authorized user, you’ll enjoy access to a credit card and you’ll build credit history, but you aren’t legally obligated to pay for your charges.

The best of luck to you!

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