Building Something Out of Nothing

Raising and maintaining a good credit score can be difficult, even for the most financially savvy among us.  It’s easy to rely a little too heavily on those credit cards, or forget to set that utility bill to ‘auto-pay’.  One or two missteps, and you can find your credit score heading south in a hurry.

But a bad credit score is repairable - a LACK of credit score is whole ‘nother headache.  It is surprising in today’s day and age that an individual could achieve adulthood without having established at least the most basic line of credit.  But the reality is that there are still many consumers who live mainly off of debit cards, and purchase vehicles with cash.  And while that lifestyle can help you avoid bad debt, it also prevents you from building good debt - which is key when qualifying for a mortgage.

So where do you go from zero?  A FICO score requires you to have at least one account that’s been open six months or longer.  You’ll also need at least one creditor reporting your activity to the three major credit bureaus (Experian, Equifax, and Transunion) in the last six months.  To establish your credit presence, you might try one of the following:

Open a Credit Card Account - Open a low credit limit card, and use it only for purchases that you can pay off in full when your statement comes due.  Gas cards and/or store cards (such as Target) will help you build credit as well, if not as fast.  And finally, you can open a secured credit card, which where you need to have money in a bank account equivalent to your credit line (want to spend $1,000 on your credit card, you need $1,000 in the bank to cover).  It works much like a debit card, but unlike a debit, it will report your payments to credit bureaus so you can build credit.

Get Credit for Your Rent - You’ve always paid your rent in a timely manner; now use your good behavior to build your credit history. Check with your landlord or property management company to see if they report your payment history to the major credit agencies. If not, you can report it yourself through a third-party like RentalKharma or RentTrack.  They allow you to link your bank account and pay your rent online, free of charge.

Pay Off a Credit Builder Loan - Typically offered by smaller financial institutions, Credit Builder loans do exactly that - they allow you to prove financial responsibility and build credit by approving you for a loan. The funds are put into a savings account, and you make payments on the loan without receiving access to them.  At the end of the loan term, not only do you get the money, but you likely will have a vastly improved credit score.  

By following any of these steps (and showing a little patience), you can prove to lenders that you are financially responsible, setting you on the path to homeownership.