Do you have no credit history? Unfortunately, having a lack of a credit history can be nearly as bad as having a poor credit history. This is because credit card companies and lending institutions are uncertain about your level of risk. As a result, they lump you in the same category as those who have poor credit until you have proven otherwise.
Step #1: Open a Bank Account
While your bank account activity does not get reported to your credit report, building a relationship with a banking institution will improve your chances of getting approved for a loan with that bank. Therefore, opening a bank account is a good first step toward building a better credit history.
Step #2: Open a Checking Account with a Debit Card
Opening up a checking account with a debit card can further help you prove your financial responsibility. Just make sure you do not overdraw your account or bounce any checks.
Step #3: Apply for A Prepaid Credit Card
If you really have no need for a loan through the bank or if you are looking for a different way to build your credit, you might want to apply for a prepaid credit card instead. A prepaid credit card is different from a debit card because it is not tied in with a checking account. Rather, you send money to the credit card before you use it to make purchases and your “credit limit” is determined by the amount of money you send to the credit card company. Just make certain the prepaid credit card you apply for makes reports to the credit reporting bureaus. Otherwise, using the credit card will not help you build up a credit history.
Step #4: Apply for a Traditional Credit Card
The downside to using prepaid credit cards is that they typically involve paying some hefty fees. On the other hand, they help prevent you from digging yourself into a great deal of debt. Nonetheless, if you want to avoid the fees and if you want to have a credit card that extends an actual credit limit to you, you might want to look into getting a non-prepaid credit card. There are credit cards currently on the market that are geared specifically to those who do not have a credit history, so look for one of those cards when sorting through your options. Unfortunately, these cards often do not have many benefits. But, once you build up your credit history with the help of this card, you can start applying to other cards that may be more desirable.
Step #5: Apply for a Loan
If you have a need for a loan, it is a good idea to apply for one through the bank you have a banking and checking account with. If you have been a customer in good standing, the bank is more likely to extend a loan to you and to present you with more favorable terms.
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