Q&A Video: How Do I Build Credit with No Credit History?

John Ulzheimer

John Ulzheimer | Q&A Videos

Jan 08, 2016 | Updated Jan 12, 2016

Are you someone who’s never had a credit card?

Don’t worry! You can still build your credit score.

Learn how to do just that in our video with credit expert, John Ulzheimer.


Hi. My name is John Ulzheimer, and I’m a credit expert who contributes to the Credit Card Insider blog. Today’s question is…

How do I build credit with no credit history?

This is an excellent question. It brings up the whole, what came first, the chicken or the egg argument. How you get credit if you don’t have credit. Some lenders gonna have to be willing to be the first lender to extend you credit. There are actually 4 ways to extend you credit. They’re pretty effective with respect to you building a credit report and starting to establish a credit score and a solid credit history.

The first is becoming an authorized user on a credit card belonging to another person. Now an authorized user is someone who has their name associated with an existing credit card or pre-existing credit card. They get a card, it has their name on it. They’re able to use the card just like the primary cardholder, however, they have no liability for the payment or the debt.

The primary cardholder still controls the account, meaning they can still ask for it to be closed, they could still increase the credit limit, they can kick you off of the card as the authorized user. Where you benefit is the history of the account is actually going to be reported to your credit reports.

So if you choose to have your name associated with a credit card account that is all is old, has already been paid on time, and has a low balance relative to the credit limit, then becoming an authorized user on that card will add a pretty positive tradeline or account to your 3 credit reports. And that’s going to go a long way to helping you to build and establishing a credit report or credit history.

The second way is to apply for and attempt to open a retail store credit card. Retail store credit cards are traditionally very easy to open, especially if you have a little to no credit. The interest rates on those types of credit cards is almost always in the mid 20s, and the credit limits on those credit cards are always very low, generally below $1,000. Those are subprime terms, high interest rate, low credit limit. Those are subprime terms, therefore, they are very easy to get.

When you get a card like that, it is going to be effective to help a credit history because the account is going to show up on all 3 of your credit reports. But be aware that if you choose to use the card, and carry a balance from month to month, then it’s going to become very expensive for you. So use that I type of card wisely if you choose to go the retail store path of establishing credit.

Next, and this is not very well known strategy, but yet very effective. A credit builder loan is a small dollar loan extended buy a credit union. What they will do is they will extend a loan to you, generally in the amount of $500 to $1,000. They will actually keep that money and place it into an interest-bearing account that belongs to you, you just won’t have any access to.

You’re gonna have to pay back the loan. And the pay-back period for credit builder loans is generally very short, usually not more than a year. After you’ve paid off the loan, you actually are gonna get that money deposited into the account where you actually can have access to it, plus any issues that you may have earned.

The best news about the credit builder loans is that when you’ve made your payments month after month, those payments are going to be reported to the credit reporting agencies, and therefore it’s going to help you to you establish a build a credit history for very low cost. The interest rates on credit builder loans are actually very very low.

The last method is by far my least favorite method, which is to become a co-obligor on a loan. In english that mean’s you are jointly applying or co-signing for a loan with someone else. This is generally pretty expensive because you’re getting yourself into a large amount of debt, either an auto loan, a mortgage, some type of personal loan.

And you are then jointly liable for the payment on that debt, the entire time that account is open, which in the case of a mortgage can be 30 years. It’s a very very expensive way and a very very risky way to establish credit.

So if you had to rank them in order, in my mind, from being the most consumer-friendly and safe. All the way to being the most risky, I think that the authorized user strategy is the is the way to go.

Opening a retail store credit card, that’s a close number 2. The credit builder is a very very good option and then last is the applying jointly for a loan strategy. I would only employ that strategy if everything else has failed and you really have no other options.

Learn more about the steps you can take build your credit from scratch in our Definitive Guide to Building Credit »

To learn more about this topic, or anything else having to do with building credit or credit cards, please visit the Credit Card Insider blog at CreditCardInsider.com. Thanks! And have a great day!

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