We all know the one friend or relative who’s a little different—someone who survives off of cash, has never had a credit card, and bragged about shunning loans. They swear on their independence, believing life is better without owing “the man” a cent.
No one desires bad credit, but is having no credit truly the better choice?
Why Do You Need Credit?
Even if you’re a “cash-only” person with no plans to borrow, building credit matters. It’s not just about loans—your credit history can affect other areas of life.
For example:
Jobs: Employers often check credit reports. A blank report might not hurt, but if the role involves finances, a solid credit score could make a difference.
Renting: Landlords review credit history. No credit? They might hesitate to rent to you.
Insurance: Auto and life insurers use credit reports to determine premiums and issue policies.
Future Loans: No matter if you’re getting a mortgage, car loan, or a credit card that’s travel-friendly, eventually you’ll need credit.
If any of these describe you (and they probably will), you need to know how to establish credit.
How to Build Credit from Scratch
Here’s the dilemma: In order to receive credit, you must have a credit history—but if you don’t have credit, approval is difficult. How do you end the cycle?
1. Request a Credit Builder Loan
These loans are specifically for those with little or no credit and serve to build a credit history. Here’s the process:
The lender advances you a loan (for example, $1,000), but the funds are deposited into an escrowed savings account as collateral.
You pay back the loan in payments (usually auto-drafted from your account).
After repaying the full amount, you receive the savings account money (minus interest).
The lender sends your timely payment information to credit bureaus, increasing your score.
Where to Find Them:
Banks and credit unions (you’ll typically need a checking account with them).
SelfLender: Provides loans of $525–$1,700, with 12- or 24-month repayment terms. Reports to all three bureaus.
DCU Credit Builder Loan: up to $3,000, 5% APR, and earns dividends on the secured savings account.
Tip: Having 2–3 credit builder loans (with various lenders) can make the process faster, as bureaus like to see several credit references.
2. Get a Co-Signer for a Loan
Without credit, qualifying is difficult—but a good credit co-signer can assist. This is suitable for installment loans (such as auto loans), as they are secured by collateral.
Key:
Pay on time! Late payments damage your credit and your co-signer’s credit, too.
Defaulting makes the co-signer pay—ruining your relationship and credit.
Similar to credit builder loans, it takes months before score improvements are realized.
3. Become an Authorized User
Another person places you as an authorized user on their credit card. You can make purchases, but don’t have to pay.
Advantages:
Their solid payment history could show up on your report.
Beneficial if you already have existing credit accounts.
Disadvantages:
Not every issuer reports authorized users.
If the original user pays late, it won’t benefit you.
High card balances can negatively affect your credit utilization ratio.
Work best as a complement, not a main strategy.
4. Student Credit Cards (For College Students Only)
Some issuers offer cards for students with no credit. Requirements vary:
Some need a co-signer; others don’t if you’re 18+, enrolled, and earning steady income (even part-time).
Key Tips:
Pay on time—just having the card isn’t enough.
Avoid overspending to prevent defaults.
5. Last Resort: Secured or Unsecured Credit Cards
Secured Cards: Preferable. You put up cash as collateral (e.g., $200 deposit = $200 limit). Lower fees, well-known banks.
Unsecured Cards: No deposit, but small limits ($300 max) and high fees (e.g., $75 upfront, lowering your available credit). Use only in an emergency.
Last Thoughts
Establishing credit requires perseverance—usually a year or more. Begin with credit builder loans or a co-sign loan. Students must consider student cards. Authorized user status will do, but is not the ultimate answer. Use secured/unsecured cards as a last resort.