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Your credit history may be the most important record of financial information that you have to your name. But what about if you have no credit history?
There are a lot of reasons you may not have anything on your credit report yet: maybe you’re a college student with no track record, or perhaps you’re new to the country. Or you may have just avoided opening up a line of credit in the past because you had no reason. While you may think that having no credit gives you a “clean slate” when it comes to your money, having nothing in your credit files could actually be worse than having mediocre credit. Because there’s no information about your financial habits, lenders, banks and landlords could deny you a loan or place to live just because of your lack of credit history.
Don’t worry: if you’re starting from scratch and you don’t have any credit to your name, there are a few simple ways to start building your credit history:
Open Up a Secured Credit Card
Your local bank or credit union may be able to help you out with a secured line of credit. A secured credit card offers you a credit limit just like a regular credit card, with one caveat: your financial institution will require you to put down a security deposit to guarantee that you’re good for the money. In that sense, a secured credit card is very similar to a debit card, except the activity on your secured credit card gets reported to the credit bureaus. That’s a good thing; but since you’re new to the credit scene, be sure to use your secured credit card responsibly so you can build good credit, and not start off negatively.
Consider Using a Cosigner
If you have limited or no credit history, your bank or lender may ask you for a cosigner before you take out a loan. A cosigner will sign a loan with you and promise to repay the loan if you are unable to pay. As the borrower, you’re responsible for regular and on-time payments. The cosigner is there to give the bank or lender assurance that someone will step up if you’re unable to make your payments. Before you ask a friend or relative to be a cosigner on a loan, be sure they understand all of the responsibilities and expectations. If you miss your payments, both of your credit scores could be negatively impacted.
Get a Credit Builder Loan
Some credit unions, community banks and nonprofit organizations offer loans specifically for the purpose of helping people build their credit history and credit scores. A credit builder loan is typically approved for a small amount, usually less than $1,000. But instead of receiving the loan and being able to spend that money as you wish, the funds are placed into an account that you make payments toward (including interest) until the loan is paid off. Because it is still considered a line of credit, it gets reported to the credit bureaus and can help you build credit.
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