What do you do if you have no credit? Having good credit can help with many things – not just mortgages. It can help you get an apartment rental, lower your insurance bill and maybe even get a job. Many people pull some form of credit before they give you a job, insurance, etc. So how do you start?
If you are in college, you may be able to qualify for a credit card geared towards college students. You may need a parent to co-sign, but try to do it yourself first. Then make sure you make your payments on time – that is huge! Ideally use it for small purchases – maybe gas or food – and pay it off in full so you do not get charged interest. You may need two credit cards to get a credit score, so you may want to look at a store credit card or another major card like VISA, Mastercard or Discover. Just make sure you pay off your balance every month – especially on store cards, the interest rate tends to be higher on those.
Once you have had a credit card for a while, you may want to add an installment loan. Maybe you need a car or even a student loan, another option is a personal loan to help build your credit. Make sure you can afford the payments and make sure the payments are all on time. If you take out a small personal loan, you could use the money from the loan to pay it back over time. Adding an installment loan to your credit mix will improve your score as installment loans are weighted more in the credit score models.
Some landlords are reporting rent to the credit bureaus – that can help too! Again, make sure you pay on time! If your landlord doesn’t report to the credit bureau, keep track of your payments – either cancelled checks or receipts from your landlord. You may need to show a rental history to your mortgage lender when you get ready to qualify for a mortgage.
Once you have built up your credit report, make sure you keep your payments on time and any credit card balances low. That way you will keep your credit score higher and that will help when you are ready to buy your first home!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
