You might think only young people don’t have established credit histories. But the facts say otherwise. It’s estimated that nearly 53 million Americans don’t have credit scores. The reasons? Some people prefer to live on a cash-only basis. Others may have previously filed for bankruptcy which caused their credit scores to plummet. And some consumers may just be new to the world of credit.
Having little or no financial history can be a real stumbling block to getting the things you want. Whether you’re considering buying a home or maybe need to get a new car, unless you’re planning to pay for the entire purchase with cash, you’re going to need a bank or some other financial lender to give you a loan. And getting approved may be difficult without a solid credit history.
So how do you start? Here are some suggestions:
1) Get a secured credit card. A secured credit card looks and can be used exactly like a regular credit card. The only difference is the card issuer requires you to give a security deposit which is generally equal to your credit limit. Usually these amounts range from $200 to $500 but can sometimes be higher. If you ever default on your account, the bank simply cancels your credit card and keeps your security deposit. A secured credit card is a good way to begin establishing a credit history. The issuing bank will report your payments each month to the three major credit bureaus so it’s important to always make timely payments.
2) Pay your balance in full each month. Lenders want to see a pattern of consistent payments. They also want to know that you can manage your debt and pay back what you owe. But having a credit card isn’t enough. You have to use it responsibly. Never charge more than you can comfortably pay off each month. This keeps your debt-to-credit ratio low and saves you money (no finance charges).
3) Never miss a payment. This can’t be stressed enough. Even one late payment can have an adverse effect on your credit score. Know when your bills are due. Sign up for automatic reminders. Set up Bill Pay through your bank. Do whatever it takes to always pay your bills on time each and every month.
4) Don’t apply for numerous credit cards or loans. Each time you submit an application for new credit, your credit score takes a hit. Be patient and concentrate on maintaining an excellent payment record with one or two credit cards. After a year or so of timely payments you should be able to get a credit card (unsecured) with better terms and maybe even some rewards. But remember the same rules apply to all credit cards: pay off your balance in full each month and never make a late payment.