Building credit from scratch might seem tricky – how are you supposed to build your credit if you have no credit cards or loans? And how are you supposed to get a loan or credit card if you have no credit history? Relax. There’s several ways to begin building your credit.
How to Build Credit with a Credit Card
1. Get a secured credit card
When you apply for a secured card (like the Patelco Pure Secured Mastercard® Credit Card), you’re using a deposit to secure the loan. The amount of your deposit is the amount of your credit limit. For example, a $1,000 deposit tied to a secured credit card means you have can spend up to $1,000 on that card. Once you have the card, you use it just like any other credit card: buy stuff and then make your payments on time. As you make payments, you’ll begin to build credit. And when you eventually move on to a regular credit card, you’ll get access to your deposited funds again.
Make sure you understand the ins and outs of credit cards before you open an account.
How to Build Credit Without a Credit Card
2. Take out a secured loan
A credit-builder loan works similar to a secured credit card, except it’s a loan you’ll get in a lump sum. The money on deposit will be held by the bank or credit union until you’ve paid off the loan. At Patelco, we offer loans secured by a certificate of deposit.
3. Get a loan with a cosigner
Sometimes you may be eligible to get a loan with a cosigner that you wouldn’t be eligible to get by yourself. Be sure you and your cosigner understand the risks and responsibilities inherent in this type of loan – if you don’t make the payments, the cosigner becomes responsible for the loan.
4. Become an authorized user on someone else’s credit card
Another way to begin building your credit is by being an authorized user on someone else’s card. This only works if the particular issuer of that card reports authorized user activity to the credit bureaus – so check this before being added. Make sure to work out the details with the primary user of the card and specific who’s responsible for making the monthly payments for any purchases.
5. Pay your rent and bills on time
Not every landlord or rental agency is reporting to the credit bureaus – but some are. So whatever rent or bills you have, pay them on time. If these payments are being reported to the credit bureaus, you’ll be building your credit.