My fool-proof methods to grow credit when you have none.
**I am not a financial adviser, nor by following these rules can I guarantee that you will see the same results, even if your situation is similar. Seek professional advice before making any final decisions. No information/ advice in this post is sponsored**
What is Credit? We know that a credit score is important, but how do you get credit when you have none? Especially since no credit is worse than not having any at all.. don’t worry I will explain 🙂
Credit, and or, a credit score helps lenders decide whether to approve you for a loan.
So, if you’re still in high-school, or maybe don’t have a reliable cosigner you know or trust, what are your options?
I’m going to assume you don’t know too much about the terminology, read this to catch up.
- Cosigner- A person that already has a good credit history established, and is going to sign paperwork that will make him or her financially responsible for paying if you cannot pay. This is binding and will affect both of your credit scores.
- Credit Score- a three digit number that is compiled from different agencies that look at your payment history etc.
- Soft Pull/ Soft Inquiry- Lenders are able to peek at your score without lowering it.
- Hard Pull/Hard Inquiry- Lenders are able to peak at your score, but this lowers it by a few points (Points usually take a few months to build back up, and yes every hard pull docks points) **Always ask if soft pulls are available, or check it yourself here. and offer to show them from a reputable source like https://www.transunion.com**
- Minimum Payment- lowest amount required to be paid during that billing period Word to the Wise-pay at least double the amount of your minimum payment
- Annual Fee- Fee you pay each year for having that particular credit card (Not all cards have this)
- APR- Annual Percentage Rate and Interest Rates are the same when dealing with credit cards.
- Transaction Fees- Can also appear as “Foreign Transaction Fees,” fancy term for cashback from ATM
- Credit Report- Creditors publish a private report on your payment history, and payment habits. May also include: information on past and current credit balances, number of on-time and late payments, total number of open accounts.
Your monthly payment is based on your interest rate.
**Example: if your balance is $100, and your interest rate is 25% (too damn high). Your monthly payment may be only $25.00. but it will decrease based on paying off your balance.
Now I’m all about examples, and I’m a walking testimony that we can make credit card companies our bitch. Excuse my french 😉 I received my first credit card at 18, I’m 20 years old now and my credit score is 736. You can do this.
I’m sure you’re curious how to build your credit without credit cards.
My top 3 options you may not have thought of to grow credit:
1) Ask your parents to put a bill in your name that they’re already paying. For example, utilities, water, cable bill or Netflix account could have your name on it and as long as it’s getting paid in full, and on time, you are on your way to building your own credit history.
Some students buy a phone, and pay their monthly bill. This is an option, but you can save over $100 by staying on your family plan, which I highly recommend you do if you have one.
2) Another favorite option that will get your feet wet are retail cards, but don’t hang yourself with too much rope… Let me explain the catch.
So pick your favorite clothing, or necessity store that offers credit cards. Amazon, Walmart, Sephora, Victoria Secret etc.. and you can compare cards like this at www.wallethub.com. After you select your options: this is where you get picky.
Suuure, who wouldn’t love a credit card to their favorite store that can swipe forever? Big companies know that and they’re going to try to lure you in with
- No Annual Fees
- Reduced or nonexistent APR for 6-12 months that means no interest on overdue balances BUT it will wear off after that time is up and when it does…They’re coming at your neck. 26% APR Is death to your wallet. NEVER get a card with 26% APR unless you are 1,000 percent sure you will not be tempted to buy too much.
- As once your time is up, you’ll be charged to pay what you owe at 26% interest. 3.99% -5.99% is much better to help you in case you mess up.
You can only use the retail card at that particular store btw. Gas cards are a popular option as well, but check guidelines for each card is different in nature and responsibility.
Store/Retail cards are great to use if you buy the amount you would normally buy and pay it off in full, and on time. That’s the catch. Got it? If not, read my example below love.
Great tip I use to avoid debt, and streamline payment so I have no excuses:
If I know I’m going to Victoria Secret and I’m going to shop the 5 panties for $27 sale, I’ll have $35 in cash, or on my debit card. I make my purchase with my credit card, (deposit the cash if I hadn’t already), and wait until my purchase is posted on my credit card. Then, I’ll set up my account so I can pay from my phone.
BOOM! Building credit, and not indebted.
Another tip I have is to not get goo-goo-eyed over these low minimum payments. To illustrate, If you owe $100.00, but if you only pay the monthly minimum of $25.00 this is how you end up getting yourself in more debt.
Word to the Wise: at least double your minimum payments. Don’t forget Credit Cards make money from you being in debt. Don’t make it easy for them!
3) Finally, another way to build credit without cards would be to borrow a small personal loan from your bank. My loan officer told me personally that if you do this, do not pay it all back at once. Part of determining your reliability is whether you can make full payments on time. I did this incorrectly by borrowing and paying it all back 1 month later. It does more harm than good. So pay your monthly payment for at least 6 months before paying it all back. (While you’re at the bank check those APR%)
I hope you took great notes, but still here’s a recap:
- Get a bill in your name that gets paid regularly, and in full
- Sign-up for a gas card to avoid most trip-wire. Or get a retail/store card, but remember the catch: don’t fall for high APR
- Always pay at least double your minimum payment before it’s due, if you can’t pay your total balance completely off
- If you borrow a loan from your bank pay according to your payment schedule, paying it off too quickly can hurt you.
Did you want to check out real credit cards but don’t know how to research/compare?Check this out.
P.S. My personal favorite is Discover. Best cashback system I’ve seen, and missed payment forgiveness.
Feel free to post any questions you may have, and be sure to share with someone.