- Apply for and open a new credit card.
- Open a secured credit card.
Wait a minute…does that mean that in order to get a credit history, I have to get a credit card? After a bit of research, I was pleasantly surprised to find out the answer is NO! While you will need a loan in order to build a credit history, that loan doesn’t have to come from a credit card company. There are several ways to build a credit history and get a credit score without getting a credit card:
- Borrow from Yourself – This is the easiest method to establish your own credit history without a credit card. Buy a Certificate of Deposit (CD) from a bank. Then take out a secured loan against the CD for the same amount of time. Put the money you borrowed in a high-yield checking account. Then use the money you borrowed to payback the secured loan. You’ll be establishing a credit history and earning interest on your checking account and CD. There are some downfalls to this method. You need the starting capital to fund the CD. You could end up paying more interest on the secured loan than earn through your CD and checking account; however, it’s probably less than what you’d pay in fees and interest if you used a credit card. Just make sure to weigh the true costs before going down this road.
- Federal Student Loan – There are several requirements to be eligible for federal student aid however, an established credit history isn’t one of them. As long as you’re going to a school that participates in federal student aid programs and meet the other requirements, you can take out a federal student loan. The interest rate for a new subsidized and unsubsidized loan generally has a fixed interest rate of 6.80%, which is substantially better than a typical credit card interest rate. The only catch is that your lender may not begin reporting the loan until you begin paying it back. So if you wait until after college to begin paying back your student loan, it could take years to establish a credit history.
- Co-signing a Loan – Many banks will provide a loan if you have a co-signer with a good credit history. However, it may be difficult to get someone to co-sign on a loan, because of the inherit risk associated with it. If you’re lucky enough to get a co-signer, make sure that you make timely payments because with this method, it not just your credit history at risk. Your payment history will also affect the co-signer’s credit history. An alternative is for you to be the co-signer. If you know someone that has a high credit score, is responsible and taking out a loan, you can “game the system” by being their co-signer. As they make timely payments on their loan, they’ll be helping you establish a credit history . Be warned, if they default or make late payments, this will negatively affect your credit score.
While you’re building a credit history, it’s a good idea to keep an eye on your credit report. You can sign up for a credit monitoring service or get your free annual credit report at AnnualCreditReport.com. Make sure to review what’s listed and dispute any credit mistakes. If there are mistakes with more than one credit bureau, you’ll need to address them separately.