Friday, April 9, 2021

What to do if you're just starting out and have no credit.


To many it may seem like a cruel game, credit card companies will not give you a credit card if you have no credit and you can't build credit without getting a credit card. So what is a person to do? There is a few methods that can help you solve this problem, there is not a one size fits all solution for everyone so choose the solution that matches you best.

1. Have a parent or sibling add you as an authorized user to one of their credit cards. An authorized user is basically someone who did not have to qualify for the credit card but has access to the credit and is equally responsible for making the payments. This means, regardless of who charged the money to the card, on the due date it's up to the main user and authorized user to ensure that the payment is made on time or both will suffer a late payment being reported on their credit. This is probably the easiest method to building credit. You don't even have to do much. I started off my siblings like this by adding them, they didn't even know. I never gave them a card and I just continued to pay off the balance in full. Within a year they had excellent credit.

Pros: Super easy, fast track to good credit, you didn't do much at all.

Cons: You will need to ask for assistance, if they miss a payment you missed a payment. Your parent or sibling may not want to add you. Some credit cards charge an annual fee for authorized users.

2. Get a secured-credit card. A secured-credit card is a card that is secured by something else, or in other words collateral for something else. Most secured-credit cards are secured by cash. So you can get a $500 credit card, but first to qualify for the card you must give the credit card company $500 to start you off. You might be thinking that's crazy, but essentially what you're doing is paying the bank to give you some trust. So after you pay them the deposit, they hold those funds and give you access to credit. Typically after you have proven yourself (in most cases 1 year) they will refund your deposit and keep your credit card open for you. 

Pros: You did it on your own, builds credit fast.

Cons: You have to pay upfront to borrow your own money. Sometimes it takes longer than a year to get your money back.

3. Open a small department store credit card. Often times if you don't have any derogatory marks on your credit and you have steady income, department stores such as Dillard's, Macy's will issue you a small amount of credit.  My very first card was a Dillard's credit card with a limit of $300. If you make your payments on time and don't leave the card maxed out eventually they will raise the limit of this card helping you build credit even faster.

Pros: Often times you get a discount at the retailer for opening credit. No money out of your pocket.

Cons: Hard to get if you have any previous derogatory marks on your credit report. Usually high interest rate. Low limit makes it easy to max out your card which can hurt your score.

Credit is confusing

 There is so much information available to you out there, it's hard to know what is correct and what is only half correct. Many websites...