It is possible to not have a credit history especially if you’re still young. However, it is not a good situation to be in. Having no credit history at all may be hard for you to get your loan approved in the future. Banks have little to no reason to trust you with their money since you just starting off the working world.
When it’s time to buy a car or own a house, having a healthy credit history is crucial. A credit score shows how good you are in managing money and highly reliable in almost all financial transactions. The credit history is needed as a benchmark for the banks to decide if you are qualified for a loan or credit. The banks may also take a look at your credit scores when deciding what rates you’ll pay. But how are you going to prove your financial trustworthiness if you don’t have a credit history?
One way to show your financial responsibility when you have no credit history is by borrowing money and paying it back on time. The first step you can do to build a credit history is by getting credit cards.
The stories about credit card debts may put you off from using one. But a credit card can be your best friend if you use it responsibly. You can start by getting a secured credit card if you’re thinking of obtaining one. Why a secured credit card? Most secured credit cards are easier to obtain when you have poor to none credit at all. A secured credit card will require you to provide a cash deposit beforehand that acts as collateral when you’re missing the payment. Secured credit cards are usually tied to a savings account. So, the limit will be based on the amount of the deposit you have maintained with the bank.
Bear in mind that you’re in the journey of building your credit score. Try to avoid applying for an expensive credit card. Besides, make sure the banks report the timely payment made with the credit bureau. The cards that don’t report to the credit bureaus won’t help in establishing a credit rating.
Of course, you can!
Some of you might hold to the principle of not to get involved with credit cards. If that’s the case, you can build a credit history in other reliable ways without having a credit card in your wallet. You can build credit via:
Graduates who were funded by student loans during their degree have automatically established a credit score. Not many graduates are aware that student loan contributes to their credit score. Student loans are a type of instalment loan and reported to the credit bureaus. So, getting a student loan is another way you can build a credit history. Student loans may even be the first account for most people in establishing their credit reports. But, make sure to pay them back diligently every month to avoid your credit score from dropping.
Taking out a student loan may put more pressure on your finances as a whole. Consider taking out a loan only when necessary. Do not be in debt solely for the sake of building a credit history.
If credit cards or a student loan are not for you, purchasing a vehicle is another good way to build a credit score and at the same time, ease your mobility. Buying a car is one of the big purchases that most people make when starting their career journey. Not everyone can afford to make this big purchase in cash. In most cases, they will opt for a 5-year to a 9-year car loan. Taking out an auto loan to own a new car helps your credit by paying the monthly instalment.
To get this instalment loan approved might be quite difficult when you have no credit history. But don’t get discouraged. With a steady income and excellent downpayment, you may be able to get it approved in no time.
If you find it hard to qualify for a loan, you may try to take up a loan with someone else and share the responsibility for the payment. Co-signing is applicable for any type of loan be it student loan, mortgage or auto loan.
Having someone with a good credit score to co-sign a loan lowers the lender’s risk. The co-signer will be held reliable for the money owed if you can’t make it on your own. That is why it can be a help to qualify you for a loan even if you have no credit history. But remember to only go with this option if you trust that person (and vice versa). If you’re being irresponsible with the payment, it can hurt the co-signer credit as well as your own. Remember the risks of co-signing, as any mistakes made with this option can jeopardize the relationship too.
Is it necessary to go in debt for another debt? Nope, it’s not. The banks don’t solely rely on your credit history to qualify you for a loan. There are many other things that can be looked into before they decide to reject or approve your application. However, having a good credit history shows how responsible you are with the repayment schedules.
Building credit is simple. You just have to commit to a loan and treat it responsibly every month. A healthy credit score comes from a responsible credit behaviour such as limiting debt and avoid falling behind your bill. Just like any other loan, paying on time can help your credit while late payment will hurt it.
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