building credit with no history

How to Start Credit Building With No History

Your desire to purchase your first car or get in on a real-estate opportunity can have you second-guessing how important your credit score is to you. 

You were putting off focusing on your finances for the longest, and now you’re googling “how to build credit fast with no credit history.” Although you’re hopeful, the results of your search might not make all of your credit-building options clear.

We’ve got the full, complete, comprehensive, jam-packed guide on all the routes you can take to build credit for the first time.

Use a Debit Card That Builds Credit

To get things started, let’s dispel the rumor that you need a credit card to build credit. If you haven’t heard, there’s Extra. Extra is a debit card that helps you safely build credit.

To get started with an Extra debit card, you don’t need to have any credit history. Extra works by connecting to your checking account. You can go about your regular spending and build credit for your everyday purchases. Here’s how it works:

Extra connects directly to your bank account. Once connected, Extra creates a spending limit based on your account’s balance. From there on, your spending will help you earn credit and rewards. When you buy something on your Extra Card, they spot you for the purchase, then automatically pay themselves back in the next business day.

Extra reports your spending to credit bureaus as credit-worthy at the end of each month. As you continue to use your Extra card, your credit history builds. 

Extra gives you the best of both worlds. With Extra, you can take advantage of all the perks that come with using a debit card and build credit for the first time in your life. 

When you use Extra instead of a credit card, you avoid credit card debt, credit checks, interest, and credit limits. If those aren’t enough perks, the Extra card also lets you earn up to 1% back in redeemable reward points.

Become An Authorized User

If someone in your life is a responsible credit card user, you may want to ask them if they’d let you be an authorized user on their account. Being an authorized user means that your name will be attached to someone else’s credit account.

As an authorized user, you can receive a card of your own (or not) and be seen as someone responsible for the bank account. Registering as an authorized user is an excellent way to build credit without a credit card of your own, but it does require a lot of trust. 

You’re not obliged to pay the credit card bill or debts, but the credit card activity will be accounted for on your credit report.

You’ll want to be sure of two things before you go down this route:

1. Check that the credit card issuer reports authorized users to the credit bureaus.

2. You trust the account holder to make sound financial decisions and build a good credit history. 

Being an authorized user is a great way to start building credit if you don’t have any. Just remember that if the account holder doesn’t make payments on time or goes above 30% utilization, it can reflect poorly on you. 

You’ll want to fully trust that the account holder will make sound financial decisions for both of your credit reports. As soon as you become an authorized user, the account holder’s positive credit-building actions will help with your credit too.

Use Credit Cards Designed For First-timers

There are some options designed to be first-time credit cards when you have no credit history. Banks and other financial institutions understand that not everyone has the opportunity to be an authorized user or build credit in their early twenties; that’s why they offer student and secured credit cards.

Student Credit Cards

Applying for a student credit card may be a viable option if you’re a student. As a student, you’re more likely to be approved for student credit card programs, which often come without annual fees. Keep in mind that being a student doesn’t guarantee you’ll be approved for a card. If you aren’t approved for a student card, you can also look into secured credit cards. 

Secured Credit Cards

Secured credit cards are often referred to as starter credit cards, but at Extra, we think they make building credit for the first time much more complicated than it has to be.

Secured credit cards are just okay; they do let you build credit, but they require an initial cash deposit that can set you back in funds for a while. To learn more about how Extra makes credit-building much more straightforward than secured credit cards, you can see the rest of the deets on our blog.

Credit cards are super popular for building credit, but they’re dangerous. Now that there are credit-building debit cards, we don’t see why you wouldn’t use one.

Apply For a Loan ONLY If You Need One

Aside from the Extra debit card and various credit cards, loans are a feasible way to start building your credit history. To be approved for a loan, most creditors will look to your credit report to see if you’re a responsible borrower, but they won’t see much in your case. 

Don’t worry; there are loans designed for people like you; they’re easier to be approved for than others. Under your circumstances, it’s important to look for lenders who consider other factors besides what’s included in your credit report.

Federal student loan

If you plan on going to college, you might need to take the hefty hit of a student loan. Without a co-signer or any credit history, it’s going to be rather tricky to get approved for one.

Rather than applying for a private student loan, it’s best to secure a federal student loan. By filling out the Free Application for Federal Student Aid (FAFSA), you can access federal loans, grants, and scholarships. 

Federal loans are always the better option as they offer lower interest rates and come with income-driven repayment plans and forgiveness programs. To be approved for a federal student loan, you’ll need to meet their eligibility requirements, which pertain more so to your academics and citizenship rather than your credit history.

As long as you make your monthly payments on time, you’ll start to build credit.

Small loan

You don’t have any credit history, which means that lenders don’t know if you’ll pay them back or not. Rather than risking large funds with you, they’re more likely to let you borrow a smaller fund.

First-time personal loans are hard to come by, big or small, especially when you don’t have any credit history. While it’s possible to get a personal loan with no credit history, it can make the borrowing process more difficult.

Although few, there are some offers for first-time personal loans when you have no credit history. Lenders will look at factors aside from your credit scores like employment history, income level, and bank statements to get a better idea as to whether or not they can trust you.

Although a personal loan is a form of credit that can help you build a credit history, it’s not a route we’d recommend taking. You most likely don’t need a loan if you’re not going to college or starting your own business, so it’s just a way to set yourself up for paying interest and running into additional debt.

Credit builder loan

Credit builder loans are great solutions for people who have little to no credit, and most people get approved for them. We know we just told you not to take out a loan for no reason, but a credit builder loan functions differently from a typical personal loan.

When you’re approved for a credit builder loan, the amount you borrow is held in a bank account while you make payments. Usually, the money remains untouched by you until the loan’s fully repaid.

Once fully repaid, the loan amount is transferred to your savings account. A credit builder loan is basically a way to systematically build credit while building savings.

Even though you’re not using the money, you’re simultaneously building savings and your credit. Your loan payments are reported and considered on your credit report. Having your payments reported will help you build credit and trust as long as you create a strong payment history.

Have Your Bills Reported to the Credit Bureaus

Some of your payments automatically get reported to credit bureaus, but for others, you may have to put in a request.

You rarely have a rent payment or auto loan without a credit score, but if you do, make sure that your payments are reported to the credit bureaus. Helping your parents pay utilities or a car lease can also get reported!

If you’re a good sport about paying your bills on time, you should see if your landlord, property manager, or leasing company reports payments to the bureaus. If your payments get reported, then you’re in luck; let the credit-building begin!

Hmmm… you know who else reports subscription payments, coffee trips, and all your other everyday payments to the credit bureaus? Extra. Just saying.

Welcome To The Credit-Building Party

Now that you have many options to choose from, don’t let those financial opportunities pass you by. Getting a jump start on your credit history can impact your life in so many ways. 

Remember that credit-building shouldn’t be difficult, and there are always ways to get your foot in the door. You can…

If you’re starting from scratch, all of these methods will come in handy, but it’s best to find one that works for you specifically. Don’t take out a loan if you don’t need one, don’t become an authorized user on an account you don’t fully trust. Use the credit-building tool that works for you.

Be sure to familiarize yourself with what is and isn’t effective as you try to build your credit for the first time. And as always, the Credit Wizard is here to help and guide you through some magical credit-building.

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