How to build a credit history from scratch

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Credit Card Applications » Research » Guides » Building Credit History » How to build a credit history from scratch

How to build a credit history from scratch

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Credit history is a document that has all the financial transactions of an individual, and establishes the credibility of that individual through credit scores. Every credit history gets a credit score based on the credit limit, the usage of the credit limit, the promptness in repaying the credit taken and many such dynamics. If a person has never taken loans, or never applied for credit cards, or never taken a line of credit, then that person will not have a valid credit history. Having a credit history is important in many ways, since every major financial transaction calls for a credit history check. Personal loans and other loans like home loans and auto loans will be needed at some point of time. Without a valid credit history, obtaining these loans from reputed organizations are almost impossible, since they need a credit history to ensure the credibility of the borrower. Housing loans are impossible because money lenders will not be prepared to lend such big amounts of money without a valid proof of credibility. Building a sound credit history before applying for home loans is a necessity in order to get good interest rates and complete loans. Credit history can be built by taking loans in small amount from money lenders who do not need credit checks. But they must report the loans to the credit history bureau in order for the borrowing and repayment to be on the record. These small amount personal loans can be obtained from online money lenders for a limited time period within which the amount has to be returned. Also, payday loans which can be taken with the help of an employment record, and the loans have to be returned when the next paycheck arrives. Although relatively small amounts, these loans give an idea of the whole process of borrowing and returning the loan amounts in time. Applying for new credit cards is another way to build a strong credit history. But any new credit card application requires a credit check to be approved of. There are a few credit cards that can help build a credit history before applying for a card from a reputed company. Secured credit cards are available in any bank, where the individual applying for the card agrees to keep a security deposit. The credit limit will be set according to the security deposit and the card can help in learning how to handle credit cards. Other option is to apply for add-on credit cards with a cosigner. But the bill payments will have to be done diligently because the cosigner will also be responsible for the missed payments, and his or her credit history will take a hit. Department store cards can be of help if they report the activity to the credit bureau. They are free to apply, and can be used for purchases only within the department stores. Although they are high interest cards, they are worth it, if a valid credit history is built. Although having no credit history means never having to face debt, it is one of the most important financial documents which is a necessity is today’s credit driven economy.

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