What to Do When There is Nothing in Your Credit File

How many times have you heard the phrase “No Credit … No Problem”?  However, that “no problem” part may not really be true. For those companies advertising those “no credit, no problem” specials, it may be a case of buyer beware. Consumers without established credit may end up paying more money for something others with good credit ratings might not.

Now, in the heart of a credit crunch, it may seem impossible to start establishing credit. You may feel as if there is always a Catch-22 scenario – as in you can’t get credit with out a credit history and you can’t establish a credit history without good credit. But for many, establishing credit and maintaining a good score is almost a necessity in today’s times.

Without a credit card, there are many simple things you find hard to do, such as rent a car, make reservations on airlines, purchase merchandise online – just to name a few.  Credit cards are good for emergency reasons but in order to avoid falling into a trap of debt, it is wise to understand how credit works beforehand and remember that spending on credit should only be done when you have the cash to back it up.
 

So how can one who has never had the occasion to establish credit start doing so today? Again, it is not impossible but will take some time. Here is a list of things you can do to successfully start establishing a credit file and credit history. Since most lenders look to your credit score to determine your creditworthiness, you will need to supplement your reliability with:
History of Residence – A lender will definitely look at your living history. They want to see consistency in residency and may be concerned if you have moved frequently or tend to stay put. It can make a difference to a lender also if you rent, instead of own, the place you currently reside.

History of Employment – Like you living history, lender want to check out your work history and make sure you can hold a job. If you tend to have long periods where you remain unemployed, it may be looked at unfavorably.

History With Banks – In order to open a checking or savings account with a bank, you are not required to provide your credit history. Even though banking institutions do not report to the major credit bureaus, lenders may take your banking history under careful consideration when making the determination of whether or not you are creditworthy. Maintaining your bank account also shows the lender that you are capable of managing money. If you have a steady, long-term relationship with your current banking institution, you may want to check in with them first to secure your first loan or line of credit, since this is a lender that essentially already knows you.

History With Utilities – A few years ago, utility companies did not require credit checks in order to open an account. However, many companies are trying to reduce their risks and will now require said credit check and maybe even a security deposit. A lender may ask to see your telephone or electric bill in order to determine your consistency in payment history and your ability to meet payment due dates.

Your lack of credit history, especially now, may be a hindrance to getting credit because of the associated risks. But there is no reason to give up. Perhaps you can first try establishing credit with a department store and make sure you pay off the balance in full each month and keep your account active and in good standing. If you do not qualify for a department store credit card, you can also take the route of applying for secure credit card, which is generally easy to obtain with no credit history. Whatever avenue you choice to obtain credit, keep in mind that good money management and consistent monthly payments are an absolute must to maintaining a good, solid history of credit, which is what your will definitely need if you plan to apply for larger lines of credit, such as a home mortgage.
 

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This entry was posted on Thursday, November 27th, 2008 at 7:50 am and is filed under Credit Card News, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.