Unfortunately, “no credit” equals “bad credit” in our society.
The credit rating agencies have decided that choosing to abstain from credit may be proof that you don’t know how to manage it! It doesn’t matter if your decision is well thought out and calculated: in the eyes of the credit bureaus, your credit rating will be low.
If you are in this boat, you can easily build up your credit score, if you’re gainfully employed and have financial discipline.
1. Apply for a secured credit card.
A secured credit card will issue credit based on the amount of a deposit you make. So if you deposit $250, your credit limit will be $250.
The one drawback is that most of these cards come with an annual fee. Try to select one with low fees.
Once the account is set up, you simply use it like you would a regular credit card.
The credit card company will report your payment history to the three credit bureaus like they would for any other card. If you continue to make on-time payments, your score will gradually increase.
Eventually the credit card company will refund your deposit and convert your card to an unsecured one.
2. If you have an outstanding student loan, and you’re paying it on time, you are building credit.
There are a few other, gimmicky ways to build credit. But I don’t like gimmicks when it comes to personal finance. In my opinion, the secured card route is the best one to take. I’m speaking from experience!
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