When you do not have anything on your credit report, it means that you have not borrowed anything in the last 7 years. Many companies will refuse to work with you because you have nothing to show ta history of responsible repayment.
But building credit history is a lot easier to fix than having bad credit, and the following 7 tips will help you build a solid credit score in as little as 6 months.
The FICO Minimum Requirements
In order to get a FICO score, you need a credit report that satisfies the following criteria:
- A minimum of one account that has been opened for at least six months; and
- A minimum of one account that has generated activity and been reported to the credit bureau within the past six months.
1. Apply for secured credit.
To meet the first criteria, apply for a secured credit card that report not just your current and highest balance, but your total available credit to at least one, but preferably all three of the credit reporting agencies.
A secured credit card requires a cash collateral deposit that becomes the credit line for that account. It works like this: you deposit money into an account ($200-$250). The lender offers you a line of credit that is equal to the amount you deposited.
You are guaranteed to be approved for the line of credit since you are putting up 100% of the collateral, so the bank has no risk in approving you. When you become eligible for a non-secured card, you get your deposit back.
2. Pay your bills on time.
This is critically important. Your payment history is the most important component of credit score, and accounts for 35% of your score. The more often you pay your bills on time, the better your FICO score will be. Use your secured credit card instead of cash for small payments that will allow you to demonstrate that you are financial responsible.
When buying groceries and other stuff, make sure that you are paying off the balance in full every time. By using a secured credit card responsibly in this manner, you’ll be building a good repayment history on your credit reports.
3. Become an authorized user on someone else’s credit card account.
If you have a family member or friend with a solid credit history who also trusts you, you can ask them to add you to their account as an authorized user. You’ll get access to the card and you’ll be able to build credit history. However, it is essential that the credit card reports to at least one of the credit bureaus, otherwise your credit-building activities will be a waste of time. You’ll want to make sure that you remove yourself from the account once you’re able to get your own account.
4. Get a gas card or store card.
Store cards are relatively easier to get than regular credit cards. Before you apply for any of these cards, it is important to check that they report to the credit bureaus. If you do get a store card, be sure to make very low purchases and pay off the balance in full every month. If you carry a balance on these cards, it will negatively affect your credit score because of the low percentage of available credit.
Once you have established credit history, cancel all of the cards. They typically have very high interest rates, which can easily lead to increased spending and debt. Note that too many credit cards will hurt your credit score.
5. Apply for a credit-builder loan.
A credit-builder loan is offered by many banks and credit unions as an alternative to using credit cards to build credit. These types of loans don’t require you to have any credit to qualify for them. However, you do need to have a verifiable source of income to make payments.
The amount you borrow is held in a savings account as you make payments, and you typically won’t be able to access to the money you borrow until the loan is paid off. Most importantly, your on-time payments are reported to the three major reporting agencies.
6. Become a co-signer on a loan.
This works differently from a credit-builder loan in that you actually get access to the loan, and you’ll be able to build a credit score as you pay off the loan. Before you take out the loan it is critically important that you have a source of income that can fully support the payments.
7. Setup an automatic payment system.
The easiest way to avoid late payments is to setup an automatic payment system so that you never miss a payment. It is the safest and most reassuring way of paying your bills because the payments are made automatically, so there’s no risk of missing a payment that can potentially damage your credit score before you get started.
8. Transfer your credit score to the United States.
If you have moved to the United States from certain countries, Nova Credit is a company that claims to be able to help you transfer your international credit data so that you can maintain the credit history you’ve built.
9. Use your credit cards.
It is important to use your credit cards because cards that are never used can cost you points. Scoring systems deduct points from consumers with no recent revolving balances reported on their credit, and dormant credit cards cost lenders money to maintain your account. FICO can’t even generate a score for a consumer without at least 6 months recent activity on an account.
Rather than leaving a card idle, charge just $10 on a card and pay it off before the statement is due. This counts as recent activity and will help increase your score.
10. Report your rent payments to the credit bureaus.
Paying your rent on a consistently and on time is one of the most powerful ways to build a solid credit history and increase your credit score. Each of the three major reporting agencies (Experian, Equifax and TransUnion) will include positive rent payment history on your credit reports if they get them. Paying your rent consistently will show that you have the financial discipline to manage debt, which will boost your credit score.
If your landlord doesn’t report rent payments, there are several companies that will report rent payments on your behalf. These include:
- PayYourRent allows you to pay your rent through an online tool and simultaneously build your credit history with Equifax, Experian, and TransUnion.
- RentalKharma allows you to add up to 24 months of past rent payments to your credit report and build your credit history. They report to all three credit bureaus.