You hear so much about credit. It’s assumed everyone has a credit score. But what do you do if you have never gotten started with it? You’ve never gotten a loan, credit card, co-signed a loan, and now you need a credit check to get something, and you can’t get it? It puts you in an interesting position: you can’t get something because you don’t have credit, and you can’t get credit because you’ve never had credit. What do you do? The answer is actually quite simple and I’ll tell you two ways to get started.
The first way to get into the game is by co-signing a loan. If you are fortunate enough to have a parent help you with this, it’s very easy. This is how I personally got started. The parent(or someone with good credit) can apply for a loan as the primary applicant, and add you as the co-applicant. Some lenders like for the order to be reversed for some reason, but the idea is the same. The stronger applicant is carrying the weight of the underwriting, and both of you have the account listed on your credit report. As payments are made, it reflects on BOTH credit reports. In my case, I made the payments on my car and my dad was on the loan with me as a guarantor. He was like a silent partner in a business partnership. If you go this route, the new loan account will be the first account that shows up on the newbie’s credit report, ergo, credit is established! If this goes well, you can later use your history on this account to potentially establish a new loan with only your name and credit. This usually takes at least a year of effort, but it’s a good move.
The second way to get started is with a cash-secured loan. The specifics will vary from place to place, but I’ll give you the basic idea. You save $500 and put the cash into a savings account. Then, you apply for a credit card or term loan and use the $500 as collateral. There is virtually no risk to the bank to do this type of loan, so they almost always get approved. The only time this would be declined would be if you had an active bankruptcy or lien against you, but that isn’t likely if you’ve never had credit before(I’ve heard horror stories of parents using their child’s credit and ruining it without anyone’s knowledge, so you never know). I like this method because it only depends on you. You don’t need a co-signer to get involved. This is always a great way to rebuild credit if you have bad credit. Many banks and credit card companies offer these types of loans, so they are easy to find. The hardest part is saving the cash up front.
Regardless of which method you use, it is vital that you make your monthly payments on time. If you truly have zero credit and you get your first account setup, you better make your payments on time and never get 30 days late. This gets your credit started off on the right foot. If you go through the effort of establishing credit for the first time, you wouldn’t want to ruin it right off the bat by not making your payments. Also, if you have a co-signer, you would ruin that person’s credit too by not paying. DON’T RUIN ANOTHER PERSON’S CREDIT!
