About 45 million Americans have little or no credit history, according to Lending Tree. This makes it less likely that they will be able to get approval for a car or apartment loan.
Often, these major stages in life require a credit check. With little or no credit, you may have to pay a higher security deposit, find a guarantor, or search for an apartment without a credit check. And buying a car can mean a bigger down payment, getting a co-signer, or paying cash. All of these options may be inconvenient or impossible for a recent college graduate.
If you’re not in a rush to make a big purchase or live on your own, it’s worth taking the time to build your credit today. Here are three ways to get started:
Become an authorized user
Consider being an authorized user like the credit training wheels. It will allow you to build your credit with the help of someone else and introduce you to the basics of credit. When a parent, guardian or someone you trust – and who trusts you – adds you as an authorized user, you will receive a credit card in the mail with your name on it.
Often parents may choose to keep the card hidden for a few years before letting their child use it. But once it’s in your hands, it can be used as a credit tool or for emergencies. This option is good because once you are ready to apply for your own credit card, you will have a credit history to increase your chances of approval.
As a senior in high school, I was added as an authorized user to one of my parents’ credit cards. By the time it was time to apply for my first credit card as a sophomore in college, I already had an established line of credit and was immediately approved.
In my experience, my number one advice is to become an authorized user as soon as possible if someone is willing to help.
Apply for a starter credit card
There are many starter credit cards with little to no credit history requirements. I would recommend student cards, secure cards and cash rewards cards.
A student credit card is the easiest card for a student to approve. We recommend Capital One’s Journey Student Rewards Card. This card is a valuable tool for earning rewards. With this card, you can monitor your credit profile with unlimited access to your credit score and automatically be considered for a higher line of credit in just six months.
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Next is a secured credit card if you have less than perfect credit. This card is backed by a cash deposit which will serve as guarantee on the account. This means that the issuer has additional security if the cardholder cannot make a payment.
Finally, opening a cash-back credit card will allow you to receive a percentage of the money you spend back, similar to a discount or coupon.
Responsible use of a credit card is essential to maintaining good credit. Once you receive your first card, your payment history will represent 35% of your FICO score. According to Lending Tree, if you’re more than 30 days late on a credit card payment, your credit score can drop as much as 180 points and can stay on your credit report for up to seven years, which can make even harder to get approved for a home or car loan.
Thanks to three years of on-time payments and keeping my credit card balances low, I was able to build my credit. It was easy to get approved for a car loan and an apartment without paying a security deposit or needing a co-signer.
Investigate other ways to build credit
I know how overwhelming it can be trying to build your credit. For some, getting a credit card or becoming an authorized user on a parent’s card is not an option. Fortunately, there are other options:
Consider applying for a credit builder loan. These are low risk loans that are easy to qualify for without a credit history. Additionally, all payments made with this loan are reported to Equifax, Experian, and TransUnion.
If you are a frequent online shopper, using point-of-sale installment loans may be an option to build credit. When you make a purchase, you can pay in four or more interest-free installments. While these services have their benefits, one downside is that you may be charged late fees if you miss a payment. I have experience with BNPL, but prefer to refrain from making online purchases unless I can pay for them in full.
Finally, services like Experian Boost can help boost your FICO credit score by tracking your monthly phone and utility payments. To use this service, you will need to show three months of payments within the last six months. Using this service will do more than boost your FICO score right now – it will also boost your credit in the long run. And after you get your first apartment, you can also use your rent payments to boost your score.
At the end of the line
Although you don’t need a credit score to get an apartment or car loan, not having one can make the application process more difficult.
Understand that credit is used for many things in adult life, so having a credit score that is in the good range will improve your chances of approval.
With a responsible lending practice, you’ll be well on your way to finding your next home or car before you know it.
Related: What You Need to Know Before Applying for a College Credit Card