Building Credit When You Have None

Credit is the ability to get goods or services, before you’ve paid for them, with the promise to pay for them in the future. Having "no credit" means you don’t have an established history of borrowing money and paying it back. When you have no credit, banks don’t have access to a credit history to predict whether you’ll have the ability to pay back your loan on time.

Here are some strategies you can use to start building your credit.

  • Become an Authorized User - You can ask a family member with a solid credit history to add you as an authorized user on one of their credit cards. As an authorized user, you can receive a credit card in your name that’s associated with the account. The credit card company reports the account information to the credit bureaus under your name, which adds you to the bureaus’ databases. Both parties in this arrangement need to be aware that any late or missed payments will negatively affect their credit history, so watch out for that.
  • Apply for a Secured Credit Card - Secured credit cards are types of credit cards that requires a cash deposit as collateral. The cash deposit required typically determines your credit limit. While this limits the amount you can spend, it provides individuals with limited credit histories an opportunity to qualify for a line of credit. Making your monthly payments on time with a secured card is an excellent way to build credit.

As you go, h­­­ere are some steps you need to take as you work toward building excellent credit:

  • Pay your bills on time - One of the most important credit-scoring factors is your payment history, and late payments can get sent to collections, which definitely hurts your credit. Make at least the minimum payment every month on your bills to avoid bad credit.
  • Use your credit cards sparingly - Another important scoring factor is how much of your available credit limit you’re currently using, also known as credit utilization. Only using a small portion of your available credit is best for your scores (experts recommend keeping your utilization below 30%).

Ready to take the next step on your credit-building journey? Blackhawk Bank can help! Stop in at one of our banking centers and speak with a Personal Banker today!

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