What Do I Do if I Don’t Have Credit?

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If you’ve never opened a line of credit before or you have little to no credit history, chances are you’re still trying to figure out just how your credit works and how to get started. FICO scores, annual credit report, credit references… The terminology may seem confusing, but building a positive credit history doesn’t have to be difficult. By following a few simple strategies as you begin building your credit, you can set yourself up for financial success in the years to come.

Step 1. Check your credit. If you haven’t ever checked your credit history, you may surprised by what’s on your record. To make sure that you truly don’t have any lines of credit associated with your name, be sure to check your credit report. If you see an account on your credit report that you don’t recognize, it could mean that you were a co-signer on an account you had forgotten about or that you were a victim of identity theft.

Step 2. Open a secured credit card. Secured credit cards are an easy way to start building credit. Ask your bank or credit union about secured credit card options for existing customers. You will make a security deposit with your financial institution in exchange for a secured card with a credit limit that’s usually equal to that deposit. Most secured credit cards report your payments and activity to the credit reporting bureaus to help you build positive credit history.

Step 3. Be responsible. If you do open up a secured credit card, make sure you don’t charge too much money to your card. You want to maintain a low debt-to-credit ratio; for example, if you have a $500 limit on your credit card you should not charge more than about $100 to the card each month. Secondly, be sure you’re paying your bills on time each month. Late payments on even your utility bills can end up negatively impacting your credit history in the long run.

Step 4. Consider a second line of credit. Another way to build your credit history is by opening different types of credit. Once you’ve established some positive credit history through a secured credit card, consider opening a different line of credit like a personal loan, auto loan or a student loan. Diverse types of credit, besides just a credit card, can help boost your credit score.

About Stephanie Halligan

Stephanie is the founder of The Empowered Dollar, a site dedicated to helping millennials to fix their finances and find their stride in money and life. When she's not blogging, Stephanie is designing school curricula and online games to teach students about smart money management.

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