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No Credit? Establishing/Re-establishing Credit

Are you ready to buy a home but have been told that you don’t have “enough” credit to secure a home loan? Or are you ready to purchase your first car but your loan application was rejected due to a lack of credit history?  Maybe you have experienced a foreclosure or bankruptcy. If any of these scenarios apply to you, following the steps below will help you establish a credit history or re-establish your credit after a negative history.

  1. Open a checking or savings account if you don’t already have one.
  2. See if your favorite store offers a credit card that reports to Equifax, Experian or TransUnion.  Most major stores will over you a credit card that can often be discreetly applied for at the check-out counter.
  3. If you already have a checking or savings account, your bank or credit union may have a credit card option available to you.
  4. Open a secured line of credit.  If you are unable to get a line of credit, this is the first step to getting those pre-approval credit cards in the mail.  Many banks and credit unions will open a secured line of credit for as little as a couple of hundred dollars.  What this means is that you essentially open a savings account with the branch, and the money you put into that savings account is collateral for the line of credit they will offer you.  That way, the bank takes no risk and you can start to build/re-build your credit.
  5. Check with a financially responsible family member to see if they would be willing to add you to their credit card account or other line of credit.  Be aware, you will gain (or lose) points based on their credit history and vice versa.

Once you have opened a line of credit, it is absolutely critical to make purchases that can be paid off easily.  Loan officers are looking for borrowers who show a history of credit purchases and on-time monthly payments over a period of several months.

As you are going through these steps, it is a great time to start saving for the down payment on your new home or car.  For home buyers, lenders look most favorably at borrowers who have a 20% down payment, however you should be prepared to a minimum of 3 ½% or more.  Do you have a responsible family member?  Some home loan programs will allow a percentage of your down payment to be in the form of a financial “gift” from a relative or sometimes the seller of the home, so always check with your lender to get more specific requirements and options.