Have you been denied for a credit card or a loan because you do not have credit? If so, the question then becomes: “Well, how do I get credit if no one will give me credit?”
It can be very confusing; a Catch 22 that seems to have no escape from. There is hope, however; a catch for the catch. There are lenders and credit card companies that can help you establish a credit history, and there are methods to use that can accomplish the same.
If your family has a need for credit, but you do not have an established credit history, then continue reading. Below are some of the means you can use to build up your credit.
Authorized User
Have your parents or spouse add you to an existing credit card or loan account. If the account stays in good standing, then you will begin to establish a good credit history. You technically are not liable for the payments (you will want to establish some rules for using the account before being added as a user) but you will benefit from the payments being made on time.
This will give you access to the funds available to the account holder, so you need to be responsible if you are added; you do not want to damage both your credit and the holder’s because of irresponsible spending. You could also devastate your standing with the parent or spouse who added you.
Co-Signer
You can begin to establish a credit history by having another person sign a loan with you. Not all lenders will allow for a person with no history to have a cosigner. The ones that do will have to look at the other person’s credit history. If it does not match the criteria the lender is looking for, you may still be denied.
If your cosigner has a good credit history, then the possibility of an approval is enhanced. You need to be cautious with having a cosigner however. If you fail to make your scheduled payments, the lender will turn to the other person on the account for repayment. You do not want to make that person responsible for your transactions. Again, the relationship between the two of you could be irreparably damaged.
Secured Credit Card
A secured credit card is one in which you must first put monetary collateral into the account before you can begin using it. Basically, it is a deposit. If you fail to make your payment, the amount will be deducted from your deposit. The amount of the deposit varies between lenders but is typically between $200 to $300. This is also the equivalent of your credit limit. Remember, these cards are designed to help you build credit, not splurge, hence the lower limit. Learn to use it responsibly.
With secured credit cards, you will still want to compare them before applying for one. Just as with unsecured cards, you will have transaction fees and APRs (annual percentage rates) to consider. Compare them carefully and find the one that suits you best. Once you have an established credit history, you will be able to either upgrade the card to an unsecured one, or you can apply for an unsecured card; both of which will lead to you receiving your deposit back.
Credit Builder Loan
An option that is often overlooked, if they have even been heard of at all, is taking out a credit-building loan. These work in the reverse of a normal loan in that you must pay the lender the amount of the loan first before receiving the amount you took out on loan. Think of it as a savings account. As you make your monthly payments, the lender reports it to the credit bureaus, and this is how you begin to build your credit.
Once the loan is paid in full, the lender will release the amount you loaned out to you. To receive one of these loans, you do not need existing credit. You will need a source of income, and proof of that income, in order to be approved for a credit-builder loan.