When you’re young, have little or no income, and want to build a credit history, it’s really difficult. The current credit environment has made it much more difficult so here are a few methods I’ve used, or have seen recommended, in the past in order to build your credit history.
One tip that has been removed from lists like these is the Authorized User tip. In the past, a parent could add a child onto one of their accounts as an authorized user and the child would see credit history benefits. Many people took advantage of that by “renting” out these authorized user slots and so FICO responded by cutting that link. Now, it appears, that authorized users have no bearing. This is the case of people trying to subvert the system for profit and the system, rightfully, punishing everyone. You can read more about the whole authorized user practice here .
Store-Branded Credit Cards
Stores love to push their store branded credit cards because the bean-counters know that people spend more on credit than they do with cash. Those same bean-counters also know that less than 100% of store branded credit card holders will pay off the bill in full, so the store can develop another revenue stream by offering a store branded card. Their greed is your benefit because they are willing to extend a little bit of credit to people with no history. One of my first credit cards was from American Eagle Outfitters (it was a cool looking card with half of it being transparent/clear) with a piddly little $500 limit. The size of the limit was irrelevant, I merely wanted another line of credit on my nascent credit report to help build it out.
College Signup Tables
Many people have written many articles about how those credit card peddlers on college campuses will be the downfall of humanity but those peddlers gave me my very first credit card, an AT&T Universal Card, and sent me on my way to building my credit history. They also gave me a t-shirt, which extended the time between laundry room visits! On the credit card application, the guy told me
to put my income as my college tuition, which may have been disingenuous, and I was approved a few weeks later.
I believe many college campuses have made this illegal, but you can still see these types of tables at sports arenas, airports, and other high traffic areas. In fact, given the stories I’ve read about these tables potentially stealing identity information (can you really trust a random guy who just set up a plastic table?), I’d be more trusting of tables at sports arenas and airports because they are vetted. For example, you know the person behind the Southwest table at the airport is a Southwest employee… otherwise they would’ve been booted by now.
Co-sign A Loan
Even though the authorized user hack has been made moot, you can still have the no credit history person co-sign a loan with a good credit history person. A prime example of this is a car loan, where the bank won’t approve the loan unless someone with good credit is willing to vouch for the no credit person and put themselves on the hook in the event of non-payment. This isn’t a tactic that one would generally use as a means of building credit, though I suppose a child could always piggyback on a loan ultimately designed for the parent, but it’s certainly a way to get a revolving account on one’s history. An account like this one, large balance with a history of on-time payment, is exactly what lenders and credit bureaus like to see. Oftentimes though, this co-signing is out of necessity.
You can get a copy of your credit report from each of the credit bureaus each year, meaning you can get three total (TransUnion, Experian, Equifax). This is a good practice regardless of how good, bad, or non-existent your credit history may be. Keeping tabs on your score and the accuracy of your report is paramount. AnnualCreditReport.com is a program run by the government, don’t go anywhere else for a free copy of your report (they will provide no actual “score” though).
Does anyone have any good tips to help someone starting out with no credit history?