One of the determining factors in determining your credit score is your overall credit history, or the length of time you've had credit in the forms of a credit card, loan, or other unsecured debt. In fact, 15% of your credit score is determined by your length of credit.
If you have little or no credit history, your score tends to be lower and lenders are more apprehensive about loaning money simply because they have no way of telling whether you will pay it back or not. However, this makes it harder to even obtain a credit history—without a credit history, it's difficult to get credit, but without credit, you can't get credit history.
Luckily, there are plenty of ways to build up your credit history without having to resort to a high-interest loan or credit card. A few easy steps to building up your credit include:
Capital One offers several credit cards designed for those with limited or no credit history. Anyone of the Capital One cards reports to the three major credit bureaus so it may help you establish credit if you pay your bills on time every month.
The first place to go for credit history is your bank. Because you already have an established financial relationship with them, they may be able to offer you a credit card with a lower limit or a special card for first-time cardholders.
Secured credit cards are one of the easiest types of credit cards to get and are popular for those rebuilding their credit or trying to establish credit. This type of card offers you credit in exchange for collateral in the form of a deposit. Your credit is a percentage of the deposit, usually between 50 and 100 percent. Like any other credit card, you make payments on your card each month, which helps you develop a good credit history.
Department store cards are usually not a good idea—they have higher interest and penalty rates than most cards and offer virtually no rewards. However, they are usually much easier to obtain than traditional credit cards and can help you build your credit history.
You can also establish credit by becoming an authorized user on another person's account. This requires a great level of trust and communication, however. If you opt for this route, make sure you are adding your name to someone who pays the bill on time each month or make arrangements to pay it yourself. You should also establish spending limits. The point here is not to have a line of credit available to you, but to establish your own credit history.
Once you start to develop a credit history, it's crucial that you keep your credit score up; after all, a credit history is not going to do you any good if it's a negative one. Keep your credit score high by following these guidelines:
Not having a credit history doesn't leave you without options. There are plenty of ways to establish a strong credit history that will allow you to build up your score and obtain additional credit in the future.