One of the hardest positions to be in is having no credit, but needing access to a major form of financing like a car loan or mortgage to buy a home. In fact, it’s getting harder and harder to get financing if you have no credit.
No credit is not as bad as having bad credit, though.
Here are a few ways to get by without having any credit history:
1) Go manual underwriting – Simply put, some people simply haven’t had a reason to build up their credit history. Banks are willing to work with people who have no credit by pushing them through manual underwriting, a way of evaluating the loan based on what limited information the banks have. In manual underwriting more weight will be put on your income stability and your ability to repay over the future rather than what you can show in the past.
2) Open a small credit card – Some credit card issuers are willing to work with people who do not have credit for small credit lines. Store cards and starter platinum cards are the way to go since they have low minimum requirements and banks are more eager to issue them to less experienced borrowers.
3) Put your name on an account – Young people often find that they pay for things in someone else’s name, either a parent’s or roommates’ account. If you have a utility bill, cell phone bill, cable bill or other monthly account, you have an easy way to build credit by putting your name on the account. When your name is on the account, you’re responsible for paying and thus the account will show up in your credit history when the company reports each month.
Building credit is essential to staying on top of your personal finances. If you haven’t already, start thinking about ways to build credit in your own name so that you never have to apply for a loan for a major purchase with no credit history.