Building credit if you have NONE.. Not bad, literally no history?

Note: This isn't about me, we have 800+ credit and I've been using it (mostly responsibly) for 15 years or so..

This is an interesting thought exercise for the hive. I was talking to a coworker about buying a car, and he had mentioned that he's having trouble getting a loan due to having no credit. He's 26, college grad, has a good, stable job after graduating with a ME. I interpreted this as "I've only had small credit cards, apartments, student loans." But I was wrong. His parents hate credit, so they gave him money for college, he's never had a credit card, and hasn't had any utilities in his name. He's even living in an apartment where he just pays cash for his rent.

He's looking to build some credit with the end game of buying a car in the short term (his saturn is on its' last legs) and a house long term. What's the best way to get him started?

I started with a store card back when I was 18 (I think it was Sears). He's saying the only thing he can get is a secured card through someone like capital one, and has been turned down at department stores.

Anyone else have any ideas?

Assuming he's responsible with his money, go ahead and get the Capital One card, start using it regularly (say, for gas and/or groceries) and pay it off monthly. Get the utilities put in his name and start paying them off as well - even though he's in an apartment he still probably has to pay the power bill, and must have a monthly cell or landline phone bill.

I had a similar experience when I decided to buy a house. Never had a credit card, nor car payment (saved up enough to buy my cars with cash), so basically had zero credit. The only bank I had been with since I was 16 couldn't approve a home loan. On top of that, they wouldn't even give me a credit card, and I had banked with them alone for 13 years. It was quite frustrating.

So I got a Capitol One card since they were the only folks to approve me. It was only a $300 limit with an obnoxious interest rate. I bought a couple things with it and made steady payments for the next 6 months until it was paid off. Then went back to the bank and they approved me that day. Basically they just needed to see some consistent payments that weren't late or under the minimum amount.

It sucked that it delayed the house thing for 6 months or so, but it worked. Now after having the house payment for 5 years, I've got a great credit score and a couple credit cards with very high limits.

I have some experience with that, given that I've moved countries a few times...

Best bet to build credit is joining a credit union that will extend him a credit card based on money he's got on deposit there. Basically like a secured card, only that it is reported as a normal card.

Second best is to get a secured card, but those are often expensively fee'd.

A car loan would normally also help, but there is a good chance that he'll end up paying rip-off interest rates, so IMHO he's better off using a credit card occasionally, keep the bill around 10% (ideal) to 30% (not so ideal but still works) max and just pay the bill every month.

There's a myth around that it's better to keep a balance on the card - that's not really true. The credit bureaus don't see that, they only see your statement balance. Just get him to pay it off every month and that he keeps an eye on the balance so the reported balance doesn't exceed the 30%.

If he doesn't really want credit, the option would be to buy gas with the card once every couple of months, pay it off the next day. That should be more than enough activity to keep the card alive and has the advantage that the utilization will be reported as very low, which is very beneficial for the credit score.

That was my take on it as well, thanks for your experiences. His credit union offered to give him a secured loan, so, basically, he gives them the $5000 he wanted to pay for a car, plus interest ($550!) and they give him 5 grand to walk around with and spend. I told him he's nuts and to just get a $300 card for a few months.

Glad to see you guys went down that path, too.

If he doesn't need the car right now, the better approach would be to see if the same credit union would give him a card with, say, a $2k limit if he puts $2k on deposit.

If the Capital One card is a regular card, that definitely beats having a secured card.

I was in this exact same situation nearly 2 years ago. Couple credit cards, help from my credit union on a car loan, and I went from no score to a score in the 600's to my current ~ 740. Creditkarma.com seems to be legit; I've used it to monitor my scores and get an idea of what to do next. Your coworker is going to have to wait a while before he gets a score worth mentioning to a car loan officer.

stuart in mn wrote: Assuming he's responsible with his money,

To paraphrase something a friend said about STDs which also applies to credit card debt:

"It doesn't take a pattern of irresponsible behavior to fail - just one slip-up."

Yup, like Boxhead I had something similar happen when I moved to the US. My driving record followed me, my excellent credit history was gone.

In my case, I was able to get an AMEX in Canada and then transfer it to a US card - that was a workaround for having a history in Canada. But since they'll issue credit cards to dogs in the US, I'm sure he can get one. It doesn't matter what the interest rate is if it never kicks in. Then I just used it and paid it off every month. I also had to pay my utilities.

Two years later, I was buying a house with an excellent score.

there is lots of competition for slow/no credit accounts.

he should register at that credit karma site to get some ideas, imo.

Before he does anything, he has an opportunity to drop off the grid entirely here. I mean, create an I.D. and an online presence, get credit cards and all that, but keep your true ID locked away. You never know when you might want to just walk away.

i built my credit up from nothing when i started working in 1993 to just over 800 when i got approved to buy my house in the fall of 2001 by just taking out a bunch of $1000 loans from a few different local small town banks and paying my utility and car insurance bills on time... the key here is "small town banks"- the kind where the president is the loan officer and his office is right by the front door. kind of hard to find them any more, but they are out there.

then a bunch of stuff happened, i lost my house in the fall of 2005, and i lived a more or less "off the grid" existence in my mom's house until the fall of 2008, when i rented a house from a friend and put all the utilities in my name. then in 2012 i tried to take out a $2000 loan to build my credit again, and i was told that i was a ghost: no credit at all. apparently electric, gas, cable/internet, and car insurance bills don't go towards credit any more.. i've now got a checking account that i've kept in the black for a year and a half now and an $1000 away from paying off a $3500 loan i took from a small town bank about a year ago.. i don't know what my credit score is, and right now i don't really care..

My parents were always cash only kinda folks. Cash for new car every 5 years. Rainy day fund in the cookie jar. Never had a credit card till it became too inconvenient to do business in the 'modern world'.

I didn't know E36 M3 about credit history back then until a wise older woman clued me in.

I took a $2K loan that I didn't even need when I was 21 just to start build credit history. First credit card ever was for buying parts from Summit, PIF every month. Had rent and utilities. When it came time for a mortgage and vehicle loan there was never a doubt. Last I checked I was in the 100% of good credit score. Might wanna check into that now, it's been a while now.

I still don't charge/ live above my means, if I can't pay E36 M3 off w/ in a reasonable time I don't buy it.

Married a Canadian and moved here. Opened a bank account at CIBC and filled it with lucre from working in the Nigerian oilfields.

Went to buy a house and they would give me Zero for mortgage since I was self employed. This was despite the fact that I was putting down 50% out of my own account that was in their bank. On the other hand, they WOULD give my wife way too much money so I figured that no big deal, the house is in both our names so I'll pay the house off in a few years and that should fix that credit score.

Found out ten years later that none of the credit for paying off the house applied to me and that since the wife was the primary on the CC we used, I was pretty much a "Non Person".

The payback was that the bank manager had to sit there and fill out all the paperwork to transfer all of my business to the bank across the road 10 minutes after she told me there was nothing they could do for me and I agreed.

Funny thing is that at TD they had a deal where if you maintain a minimum balance in your account, not only is the banking free, but they include a free CC. Considering I was a credit ghost at CIBC, TD did not seem to have any problems getting me the Gold Card that came with the deposit.

Not that TD is any better really, just felt good to walk out on someone who thought I was a deadbeat until it was too late.

Moral of the story is "Buy some E36 M3 on credit but pay it off like it was cash." If you think about it, the only people who are highly qualified for loans are people who do not need them.

Same story here.

I had my dad consign on a credit card for me. Soon I'm going to get another one, and I'm probably going to do a small loan just because to get another line open. Keep doing that for a few years and I should be good.

Is it possible to manually underwrite car loans? I know you can on houses.

In reply to BoxheadTim:

With certain CC companies, paying it off entirely each month so no interest is charged is a good way to get one cancelled after awhile. Capitol One and BoA both did that to me recently (after 2 and 1.5 years respectively)of paying off my food expenses each month.....lol

My FCU Card behaves like a personal loan with 7.9% fixed, so I use that for larger purchases.

In reply to yamaha:

Interesting. Unless I'm paying for Porsche engine refreshes I tend to pay off the balance in full every month on my cards. So far, no issue with BoA making the wrong sort of noises. That said, I did just get a card from one of my credit unions so I don't rely that much on the BoA Visa anymore.

In reply to Keith Tanner:

Pretty much the way I did it as well, only that my driving history didn't follow me. Amex Global Transfer is very useful in these situations, but obviously not really an option for the OP's friend.

In reply to BoxheadTim:

I never racked up more than $100 on either each month.....I think they decided it was worth saving the postage to mail me the statement. LoL.

On a positive note those cards and the small personal loans I've taken out over the last 5 years have allowed me to rebuild my credit from shambles after being jobless, denied unemployment, and being 1 year into a 4 year vehicle loan. I don't have my obscene for a 22yo savings cushion anymore, but I got out of that with a paid off debt and never lost the car. Long journey, but now my credit score is better than it ever was.

yamaha wrote: In reply to BoxheadTim: With certain CC companies, paying it off entirely each month so no interest is charged is a good way to get one cancelled after awhile. Capitol One and BoA both did that to me recently (after 2 and 1.5 years respectively)of paying off my food expenses each month.....lol My FCU Card behaves like a personal loan with 7.9% fixed, so I use that for larger purchases.

I can tell you that Amex won't do that. I forgot about that original card for years until they contacted me about...something that was not memorable, apparently...and I remembered I had it. Turns out they don't send a statement when there's nothing to say. When they asked why I'd decided to cancel it, I pointed out that I hadn't used it for years. We both laughed.

Keith Tanner wrote: I can tell you that Amex won't do that. I forgot about that original card for years until they contacted me about...something that was not memorable, apparently...and I remembered I had it. Turns out they don't send a statement when there's nothing to say. When they asked why I'd decided to cancel it, I pointed out that I hadn't used it for years. We both laughed.

Amex is smarter than TD. 15 years ago my wife paid off a line of credit and overpaid by about $30.

They have diligently sent her a balance statement every month. I hate to think of what real the cost of that would be over the 15 years. Just her small way of thumbing her nose at the man.

In 1961 I had just graduated from high school. I had a job and was going to be going to college in the fall; commuting from home and still working as much as I could.

My father took me to the local bank and co-signed for a $200 loan. I paid the loan off promptly and the next semester we did it again. The next year I went and got the loan by myself. I did that every semester until I graduated from college. After the second year I applied for a Gulf Gas card (credit card for Gulf gas purchases only). Used that card to pay for my gas and paid it off each month.

Needless to say, I graduated from college with an excellent credit record thanks to my father.

In reply to yamaha:

I've had a BoA card for a decade or more, and I can count on one hand the number of months it wasn't PIF each month. Never had an issue...yet, anyway.

In reply to NOHOME:

They'll eventually pay the $30 back using their same interest rate, right???

I thought PIF each month didn't help as much as paying over a few months because you are really using your "credit".