You may have heard the saying, ‘to get credit, you need to have credit’ — which can be pretty frustrating as a credit newbie.
Most milestones in life, such as buying a house or leasing a car, require a credit history, but if your credit score is low (or nonexistent), you will likely find it hard to get approved. The majority of credit cards also require some sort of credit history in order to qualify, with only a handful of cards made for people with no credit.
There are ways to build credit even if you’re just getting started. Below, CNBC Select reviews three things you should do if you have no credit history and want to start building credit.
1. Become an authorized user
One of the simplest ways to build credit is by becoming an authorized user on a family member or friend’s credit card. As an authorized user, you can piggyback off the primary account holder’s credit and as a result, establish your own credit history. Authorized users also have zero liability, so this is a low-risk way to build credit.
But before you become an authorized user, make sure your family member or friend has good credit and uses their credit card responsibly . You don’t want to become an authorized user on an account that has debt or late payment history, since those negative actions will appear on your credit history and counteract any credit building you plan on achieving.
Also, make sure you practice responsible behavior as well. You’ll want to make a clear plan for how you’ll pay back any purchases you make with the card, so you don’t risk wracking up debt on someone else’s card.
2. Apply for a secured credit card
Secured credit cards are a great way to build credit if you have none. These cards are typically easier to qualify for if your credit history is poor or non-existent. And you can use a secured card just like a traditional (aka unsecured) credit card to help you establish good credit, as long as you practice responsible credit behavior.
A secured card is nearly identical to an unsecured card in that you receive a credit limit, can incur interest charges and may even earn rewards. The main difference is you’re required to make a security deposit in order to receive a line of credit. The amount you deposit typically starts at $200 (though it can start as low as $49) and often becomes your credit limit. So if you make a $200 security deposit, you’ll receive a $200 credit limit.
The Discover it® Secured card tops our list for the best secured credit cards by offering cardholders cash back, a generous welcome bonus and no added fees on purchases outside the U.S. — all for no annual fee.
3. Get credit for paying monthly utility and cell phone bills on time
If you don’t want to use a credit card to build credit, there are some alternatives. A number of financial institutions offer credit building tools, but they may charge a monthly fee. However, Experian provides a free and easy to use tool: Experian Boost. This tool counts positive payment of utility and cell phone bills in your credit file, which allows you to build credit.
Simply connect the bank account(s) you use to pay your utility and cell phone bills, verify the data and confirm you want it added to your Experian credit file. You’ll get an updated FICO Score instantly and also receive a free copy of your Experian credit report.
You can have a credit score without a credit card if you’ve taken out a loan, had rent payments reported to the major credit bureaus, or fallen behind on other bills. A credit score is just a way of summarizing the contents of your credit reports. And in addition to information about any credit card accounts you’ve had in the past 7 years, credit reports contain info about other loans and lines of credit you’ve used as well whether you’ve been sent to collections or sued for amounts owed. Unpaid alimony and child support also are noted on credit reports, as are tax liens. So even without ever using a credit card, you still could have a credit score if you’ve otherwise borrowed money or failed to pay some key bills.
You can see if you have a credit score for free on WalletHub, the only site with free daily updates. The fact that it’s possible to have a credit score without a credit card might mean you already have a rating. But if you don’t have a score, or just want yours to be higher, you really should get a credit card. Having an open credit card account is the most efficient, inexpensive credit-building option available. Just consider the alternatives.
Here are the best ways to get a credit score without a credit card:
- Make rent payments: Ask if your landlord reports your monthly rent payments to the credit bureaus. If they don’t, you can sign up for a service like PayYourRent.com that will ensure you get credit for paying on time.
- Pay your student loans: If you took out loans to pay for college or vocational training, consistently paying them on time will build up your credit.
- Get an auto loan: You can get an auto loan with limited or bad credit history, but your interest rate and car insurance premiums will be fairly high.
- Get a credit-builder loan: Some banks and credit unions offer small loans specifically designed to help people with no credit build their history. You may have to offer collateral in order to get one.
You can have a credit score without a credit card if you’ve otherwise borrowed money, had a landlord report your payments to the credit bureaus, or failed to pay bills. But applying for the right credit card, like an easy-to-get secured card, is one of the cheapest ways to start building your credit history. And if you’re not able to get a credit card in your own name, you may be able to find someone who will add you as an authorized user. This will also help you build credit.