Recently one of our readers wrote in and revealed that she was 25 years old and had no credit history at all. She wondered if a) having no credit history was a good or bad thing in comparison to having bad credit history and b) if we had any tips to share with her as to how she could begin to build up her credit history. Upon researching this further, I discovered that it was not uncommon for individuals in their mid-twenties to find themselves without a credit history of any kind. It makes sense when you think about the amount of people who have no credit history because they maybe never felt comfortable opening a credit card and taking on the responsibly that comes with it, as well as the people who didn’t need to take out student or personal loans. A lot of young people that I knew (including myself) were and still are unaware of why it’s important to build credit history up slowly and steadily throughout your formative years in college into young adulthood. Although some might argue that giving a college kid a credit card is a very bad idea, choosing to begin building your credit history is a case-by-case basis that varies. You should start when you feel ready and responsible enough to handle it.
As far as having no credit being a good or bad thing, the research says that while having no credit is not inherently a bad thing, it may make securing the ability to qualify for a rental, home loan, credit card, car loan or other loans more difficult. Having no credit is often viewed as simply a lack of opportunity to have been able to prove yourself financially, whereas bad credit which means you might have made some a few financial mistakes in the past. But being 25 years old and having no credit history in place can almost feel like the ultimate catch 22 — It’s difficult to get any credit because you don’t have any credit history for banks, credit bureaus and loaners to reference. It’s similar to the chicken or the egg metaphor, but in instead of that, it’s No credit card = No credit history. No credit history = No credit card. If you think about the situation from a bank or loaners perspective, having no credit means that they have no reference point to assess your purchasing and repayment history and that you could potentially be a bit of a gamble for them.
That being said, there are ways that you can begin to build credit history from scratch in your mid-twenties. Although I am NOT a professional within this realm, I’ve done my fair share of research in my own life and have been able to build up a solid credit score by building my credit history slowly. In beginning to build credit history from scratch, one of the most effective courses of action would be to open a secured credit card or college student credit card (more details on all the different types of credit cards here). You could even set yourself up as an authorized user on your parent’s credit card (with your parents consent and approval of course) which is a good way for you to build credit history while still having a safety net. Again, this is only an option if your parents are willing to trust you with this responsibility but nonetheless, it’s a good way to get started.
When I started building my credit history slowly but surely back in college, I started with getting a GAP visa card which I made small purchases on and paid off every month. I remember when I opened up that visa card at 18 years old — I stood there in utter disbelief that I had been approved to carry around such an ~adult feeling~ item. It was nerve-wracking to use it at first because I was reminded of all the horror stories that my mother told me about how someone could could ruin their delicate credit score very early on by making just a few poor choices. After a year and a half had passed I decided to open another card. I was approved for a Macy’s credit card, which I would charge small items on and repay back every month to show that I was responsible with making paying consistently. Both of these retail cards helped me to establish credit history in the early years of college. Opening a retail credit card isn’t for everyone and oftentimes they can come with pretty high interest rates, but as long as you don’t keep a high balance month-to-month you can avoid being charged unnecessarily. When used slowly and responsibly, it was a great way for me to build my credit history.
Another couple of ways I was able to establish credit history was through small loans and the leasing of a car. In my last year of college I had taken out a private loan for $5,000 because I was working at two internships that were unpaid (a travesty when I think back on it now and am reminded that I was essentially paying to work for free, but that is another story for a different day). When I got my first job out of school, I made the payments every month and threw any extra money I could at the loan to knock it out and prove that I was a responsible individual. Then after having graduated from college I made the decision to lease a car with my parents as co-signers to further corroborate my credit history. I realize not everyone is in a position to lease a car with parents as co-signer, but for me it was one of the ways in which I showed that I could make steady payments. Since then, having my name on the lease of the vehicle has provided me with 3 years of solid, on-time lease payments that have significantly helped me to contribute to credit history.
Also, bear in mind that you can use websites like Credit Karma to do soft inquiries on your credit and learn more about how you can improve your score. Read up here on the differences between hard and soft inquiries, and how the hard checks can impact your score, but the soft can help.
In addition to sharing my own experience (which I recognize as just one tiny piece within the vast world of advice on how people can build up their personal credit history), there are a multitude of great resources out there from which to gain knowledge. Below is a list I curated of online resources from reputable sites, which should hopefully prove helpful when looking the matter further!