We all know that credit is important, and that having a solid credit history can grant you access to things you would not otherwise have. For example, if you want to purchase a vehicle or house in the future, chances are you will need to have established credit prior to doing so. But how do you get credit if you have no credit?
In order to establish a positive credit history, the most important thing you can do is make your payments on time when you open accounts. There are lenders who will work with customers who have a short history or no credit history – but you might have to do a little legwork. Here are some ways to establish credit.
Here are some ways to establish credit:
1. Credit-Builder/Starter Loans
Just like the name suggests, these loans exist to help customers build credit. These types of loans are made to customers based more on criteria like stability at your job and residence, and your income. Past or pre-existing credit is not considered as heavily in the loan decision. These loans are typically for a smaller amount, which means the amount of each payment and how many total payments there are, tend to be smaller as well. It is important to make these payments in full and on time to be able to get the desired credit established.
2. Co-Signers or Joint Accounts
You may be able to have someone sign on the loan with you. A joint or co-signer loan considers the credit-worthiness of another individual, and would allow that person to sign on the loan with you. Joint loans are typically for married couples. A co-signer loan holds the other person equally responsible for payback, but does not take their entire credit profile into account for the loan decision. These loans can reduce the risk for lenders, and having a co-signer also bear the burden of responsibility for the loan may persuade lenders to loan you money. Make sure you and your co-signer fully understand the details of the loan before you make the commitment.
3. Credit Cards
Small limit credit cards from your bank, credit union, or a retailer are how many people have started their credit. Some banks and credit unions may issue you credit based on their experience with you while handling your savings or checking accounts. Once opened you can use the card for purchases, and as you make payments, it will help establish your credit.
Above are three examples of how many people have started their credit. Remember the most important aspect of starting credit is to make your payments in full and on time. Start with small, manageable credit lines, and you can expand and increase that over time as your credit history grows.
For more great information on all things credit-related, head to our 'Basics of Credit' reference page.