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How to Build Credit with No Credit History

Building credit from scratch can be a daunting task, but it’s not impossible. Whether you’re a young adult just starting out or someone who has never used credit before, there are several strategies you can employ to establish and build your credit history. In this article, we’ll explore various credit options available for those with no credit and provide actionable tips to help you build a strong credit profile. For any mortgage service needs, feel free to call O1ne Mortgage at 213-732-3074.

What Type of Credit Can You Apply for With No Credit?

Even if you have no credit history, there are several credit options available to you. Here are four types of credit you can consider:

Secured Credit Card

A secured credit card is similar to a traditional credit card but requires a refundable security deposit that typically equals your credit limit. For example, if you put down a $250 deposit, your credit limit might be $250. Make sure the credit card issuer reports your payment activity to one or more of the three major credit bureaus (Experian, TransUnion, and Equifax) to help build your credit.

Credit-Builder Loan

A credit-builder loan allows you to “borrow” a small amount of money that gets deposited into a locked-off savings account or certificate of deposit (CD). Once you make all the loan payments, with interest, the lender releases the money to you. Ensure your lender reports payments to all three credit bureaus to help you establish and build a credit history. Credit-builder loans are typically issued in sums of $1,000 or less.

Store Credit Card

A store credit card is much like a traditional credit card but is generally easier to qualify for. There are two types of store credit cards: closed-loop and open-loop. A closed-loop card limits the use of the card to a certain retailer, while an open-loop card can be used at various places where the card’s payment network (generally American Express, Mastercard, or Visa) is accepted. Be cautious, as store cards may come with higher interest rates.

Cosigner or Authorized User

Recruiting a cosigner for a credit card or becoming an authorized user on someone else’s card can help you gain access to credit even if you don’t have a credit history. A cosigner shares the debt responsibility with the cardholder, while an authorized user is a secondary account holder who can make purchases but is not held liable for making monthly payments. Both arrangements can help you build credit if the primary account holder maintains positive payment activity.

How Much Money Can I Borrow With No Credit?

The amount of money you can borrow with no credit history depends on the type of credit. Here are three credit-limit scenarios:

Secured Card

The credit limit for a secured card may be in the hundreds or even thousands of dollars. The credit limit might match the amount of your deposit (e.g., a $250 limit for a $250 deposit) or be higher (e.g., a $500 limit for a $250 deposit).

Credit-Builder Loan

While you’re not borrowing money but rather depositing cash into an account for later, the credit limit for a credit-builder loan may range from $300 to $1,000.

Store Credit Card

Store credit cards typically come with lower credit limits than traditional credit cards. For instance, a store credit card might give you a credit limit of $500, while a traditional credit card might provide a credit limit of $5,000.

Authorized-User Account

As an authorized user, you’ll have the same credit limit as the primary cardholder, but spending limits may apply.

How to Build Credit

Aside from applying for and establishing credit, here are six tips for building credit:

Pay Bills on Time

Timely payments—those made by the due date—can benefit your credit. Payment history represents 35% of your FICO® Score. To get credit for on-time payments made for things like rent, utilities, and streaming services, consider signing up for Experian Boost®.

Be Careful with Credit

Keeping the use of your available credit at 30% or below will minimize the impact carrying a balance has on your credit score. The amount of debt you have makes up 30% of your FICO® Score.

Create a Budget

Setting up a budget can help you stay on track in terms of achieving a good balance between income and expenses (such as credit card payments).

Use Credit-Building Tools

Free tools like Experian Go™ can help guide you on your credit-building journey. Experian Go produces an Experian credit report in your name so you can monitor your credit-building progress.

Aim to Pay Off the Full Balance on a Credit Card Every Month

Doing this can not only reduce the amount of credit you’re using but also help you avoid interest charges.

Check Your Credit Reports

Once you have credit reports with the three credit bureaus, regularly review them to look for factors that may be dragging down your credit score. You can check all three of your credit reports at AnnualCreditReport.com, or check your Experian report for free anytime.

The Bottom Line

Building credit takes time and patience, but it can be done. At the start, you might not qualify for credit limits as high as you’d like. Yet by sticking to good credit-building practices, credit card issuers and other lenders may reward you with higher credit limits. For any mortgage service needs, call O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate your financial journey and achieve your homeownership dreams.

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