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People with no credit history or what the industry considers to be “thin” credit history will likely find it difficult to obtain a loan, mortgage or even something as seemingly simple as a credit card account. Lack of credit even has the potential to render them undesirable candidates for certain jobs that require background checks. These people may be students, young adults or people who have chosen not to utilize traditional banking systems.
The catch-22 is that it takes credit to get credit. One good way to begin establishing credit history is by using a credit card responsibly, but in order to get approved for a credit card, lenders usually want to know that you are a good credit risk. In some cases, no credit can be nearly as debilitating as having poor credit. However, due to recent regulatory alterations, lenders now also must consider a person’s capacity to repay their debts in addition to their credit score when determining whether or not to extend them a line of credit.
Here are some things that a lender may look at if you are applying for a credit card without any prior credit history or limited credit history
Savings, checking or other bank accounts.
You don’t need to have any sort of credit history to open up a checking account at a bank. Because previous credit is not required to have a checking account, any activity on the account does not get reported to any of the credit scoring bureaus. However, showing lenders that you have one or more bank accounts in your name can go a long way in encouraging them to extend you your very first line of credit.
Lenders may also be interested in reviewing your employment history when trying to determine whether or not you are a good candidate for them to offer credit to. If you have demonstrated an ability to hold down a steady job, there is a very good chance that you will seem more appealing to lenders.
Where you have lived.
Another thing that will be scrutinized is your residence history. How often you move, whether you rent the place in which you live or own it – that is the type of information that will be of interest to lenders. The more stable you appear in terms of your dwelling, the better, as far as lenders are concerned. Statistics have proven that people who own assets such a house or an apartment are safer credit risks than the average citizen by as much as 20%.
Bills in your name.
If you can, arrange to have some of the utilities where you live put in your name, such as the telephone, electric, water, gas or cable account. Although having your name on such accounts won’t build up your credit history, it can give first-time borrowers a little bit of a positive boost in the eyes of lenders.
In fact, all of this sort of data is being analyzed more and more often by lenders when considering the appeal of all potential borrowers, not only those without much credit history to show for themselves.