5 Ways to Build Your Credit from Scratch

For young people, credit can seem like a strange, unfamiliar new part of life. It can seem especially difficult to begin, since it is impossible to build credit without first obtaining credit. While this may seem like a reverse chicken-or-the-egg type of scenario, it is entirely possible to begin building a positive credit history immediately, even if you have never had one before.

You are not the first person to be in the difficult position of beginning a credit history from scratch, and there are many options available that are designed specifically for such cases. Unfortunately, there are also many predatory lenders that will eagerly take advantage of a young person who is not experienced enough to know the dangers of credit.

The keys to success in building your credit the right way is educating yourself, being smart and using the available resources properly. For more specific instructions on starting out in the wonderful world of credit, read on.

  1. Secured Credit Cards

Of all the options available for building credit from scratch, secured credit cards are perhaps the most common and effective. Unlike traditional credit cards, which are unsecured lines of credit, secured credit cards must be backed up by an initial cash deposit. They still have many of the other characteristics of traditional cards including due dates, interest rates and annual fees, but the lender has a level of security in case you do not make your payments.

  1. Student Credit Cards

In some cases, you may be able to skip the secured credit card option and move right into the grown-up end of the credit pool. Many major credit card providers offer student credit cards which are the same as any other card but designed specifically for individuals who are new to credit. This means they generally have more restrictions and lower balances.

Can you get a student credit card with no credit? The short answer is yes, but you will have to meet several other requirements to qualify. These requirements will vary according to the company, but student credit cards are easier for newbies to obtain than most traditional types of credit.

  1. Co-signers

If you are unable to obtain a credit card or loan on your own, you can ask a family member or (very) close friend to co-sign for you. In these instances, you will still be fully responsible for making all payments, and the line of credit will be yours in terms of credit reporting. However, if you fail to make the payments, the co-signer will be held responsible for what is owed.

  1. Secured Loans

One option that is growing in popularity is the secured loan. The name of these is somewhat misleading, as it is more like a forced savings account than a typical loan. When you get a secured loan, the money you borrow is held by the lending institution until you repay the full loan amount.

Once the loan is paid, you get the money. These are also known as “credit-builder” loans, because this is the only purpose for which they are designed or used.

  1. Paying Bills

Even if you cannot get a loan or credit card, you may still be able to build a credit history with the bills you already pay. There are techniques in which your landlord can report your rent payments to the credit bureaus, and you may be able to find several other bills that can be used in this way.

It is also important to remember that even if you are not reported positively for paying on time, you will certainly be reported and negatively impacted for paying bills late or not at all.