If you have little or no credit history (also known as having a thin file), you may have had a difficult time building up your credit. While it seems obvious why someone wouldn’t lend money to person with bad credit, it seems counterintuitive to be denied credit if you are just starting out and have no credit history to speak of.
So if you feel like you’re struggling trying to get credit only to find that you need to build some credit history first, there are actually some creative options for you, ones that will help you build credit without having to borrow money and without needing any significant credit history.
Here are the best ways to build credit if you have a thin file (little or no credit history):
Taking out a credit builder loan. Some banks, credit unions and nonprofits offer a product specifically for people with little or no credit history. Despite the word “loan” in the name, you don’t actually borrow money to spend with a credit builder loan. Credit builder loans are typically a few hundred dollars and you make regular loan payments (plus interest) to the bank or organization, which is then placed in a savings account. Once the loan is paid off, you get access to those savings. All of your activity if reported to the credit bureaus, which means that you’ll be building your credit history.
Opening a secured credit card. Secured credit cards are also a product usually offered by banks and credit unions. The reason the card is considered “secured” is because you deposit funds into an account (usually equal to your available line of credit) to guarantee you’ll repay any money you borrow. You then use your card regularly, paying off your balance in full each month. Like a credit builder loan, your activity is reported to the credit bureaus.
Becoming an authorized account user. If you become an authorized user on another person’s account, their account payment history will also be reported on your credit history – even if you never use the account. While this may seem like an easy solution to build your credit, it does come with some risk; if the other person starts missing payments, your history will be negatively impacted.
Using an alternative credit building or credit reporting service. More companies are trying to provide solutions to consumers to help them build credit without loans. Some services will even report your shopping to the credit bureaus to help you build your credit history! Take some time to do some research for alternative ways to build credit – you may be surprised what solutions you find.
Overall, opening new accounts and using them the right way is the best and quickest way to build credit. Just be sure to keep all of those accounts in good standing, since the majority of your credit score is impacted by your payment history and the amount of money you owe. Be sure to always pay your bills on time, pay at least the minimum amount due, and don’t use too much of your available credit.