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Can You Build Credit with No Credit

Having a young adult in the household and trying to teach such things as finances, budgeting, and credit can be difficult. As kids grow things like cars or their own place to live get talked about. It's certainly on the list of long-term goals, but how does one get there when a credit score is pulled to evaluate your "worthiness".



A few months ago we called our credit union to get a credit card for my young adult son. They declined him because he did not have a job.


He got a job and we went to a local store for clothes and he wanted to try to get their store credit card in order to start building credit. He was declined due to no credit history.


So ... how do you get a credit history, when you can't get credit???


AUTHORIZED USER


A financial advisor told me to add him to a credit card I have as an authorized user.


Our credit union said that adding my son as an authorized user on my credit card would not pass to the credit bureaus. I would have to open a new credit card with him as a secondary user. His credit will build faster if he is the primary name on the account.


American Express said

".. that Additional Card Member build credit history when the Basic Card Member’s account is in good standing. Additional Card Members aged 13 to 17 years old will not be reported until after their 18th birthday. If the Additional Card is canceled by the Basic, the credit report will reflect that the Card has been terminated. Additional Card Members show as an “Authorized User” on their individual Credit Bureau report and the account is also included in the calculation of their FICO score. However, when other issuers or lenders look at credit reports, an “Authorized User” is often given less weight than a Basic Card Member."


Some advance work might need to be done to make sure the card will report to all three bureaus.


Make sure the person is a trusted family or friend and they have a good history of repaying debt. You do not want to be linked with someone who is not responsible for their debt or finances. Your credit history is in their hands.


SHARED SECURED LOAN


Our credit union said one of the fastest and easiest ways to build credit is to take out a shared secured loan.


With a shared secured loan, it's funded by your saved money that is paid upfront as a security deposit. This is held as collateral until the loan is paid off. Automatic payments are set up with a very small interest rate. Your funds are held until the end of the loan period and your credit score has improved. You don't need any credit history because you are using your own money and it's guaranteed approval.


These are useful not only for young adults starting at zero but also for people recently released from incarceration or anyone looking to get back on their feet.


This is not something all banks will do. You would have to check with your bank or credit union to see if this is available.


SECURED CREDIT CARD


Another way to build credit is with a secured credit card. Again there is an upfront security deposit. These cards are easier to qualify for as you don't need a credit history.


This is a credit card. It works like a traditional credit card in that you have a credit limit, an interest rate, and can't be late on payments. The amount of your security deposit is your credit limit.


This comes with a gentle reminder to not charge more than you can pay. This may take some budgeting help or putting the card away.


YOUR MONTHLY BILLS


These don't automatically report to the credit bureaus. You can look into something called Experian Boost or Experian RentBureau.


These are just a few ideas to start with. Credit scores can be a hot topic. It's really important to live within your means and do not overspend. Pay your bills on time and limit credit card use. Credit cards can get you in some real deep trouble, real fast.


Ideally, at some point, you have enough saved and work your budget so you don't need to worry about credit scores for everything.




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