If you have no credit or one or two credit accounts and you want to build your credit file and scores, here are a few strategies that can help:
1. Secured Credit Card – This credit card helps build credit if you have no credit history or bad credit. You need credit to build credit. Unfortunately, if you have no credit history or bad credit and apply for a credit card (traditional, unsecured), your application will be denied. Secured credit cards require applicants to deposit money (collateral) in their savings account to be used as a line of credit for their credit card. Traditional (unsecured) credit cards do not require applicants to use their money as collateral. Although applicants use their money for a secured credit card, the goal is to build credit and increase credit scores. Secured credit cards are used like traditional (unsecured) credit cards. To avoid paying interest on a secured credit card, pay the balance in full before the due date. Once you have shown good credit management, the financial institution will return your money held for the secured credit card and offer you a traditional, unsecured credit card.
To build your credit history and scores, select a secured credit card that reports to all three credit bureaus-- Equifax, Experian, and TransUnion. For more information about secured credit cards, contact your local credit union, bank, or a HUD-certified housing counselor at a Community-Based Organization (CBO).
2. Credit-Builder Loan – This installment loan helps build credit history and improve credit scores. The loan is held in a savings account that the borrower cannot access. The borrower makes monthly payments until the loan is paid in full. Payments are reported to the credit bureaus. If payments are made, as agreed, it helps build credit and increase credit scores. When the loan is paid in full, the money is released to the borrower. For more information, contact your local credit union or bank.
3. Authorized User – This person has been authorized to use someone else's credit card. The person approved for the credit card is the primary cardholder and the only person who can grant permission to an authorized user. The primary cardholders' credit card usage and payments help authorized users build their credit history and scores. Whatever is reported to the credit bureau for the primary cardholder, the same is reported for the authorized user.
The authorized user can use the credit card to make purchases, but they are not responsible for making payments. The credit card company has an agreement with the primary cardholder, who is solely obligated to pay for all charges on the credit card.
To be an authorized user on a credit card, ask someone who knows and trusts how you manage money.