Here in the US, having a good credit history and credit score is very important. Lenders check your credit score before approving a loan for you. If you need an auto loan, a mortgage, your FICO score will be pulled from one of the three major credit bureaus. Some employers also do that! But is it a real disaster if you have no credit history and you want to take a loan? The answer is not really. Here is how things may work out.
Can you get a mortgage without credit? Sure you can. Lenders do not just look at FICO scores. They also look at income, your occupation etc. New immigrants are able to buy a house and get a mortgage. They might have to produce more documents like their bank accounts and investment accounts. And they might have to pay a higher rate. The irony is that once you get a mortgage, even if you have no credit history, you will start to build one.
Like a mortgage, you can also get an auto loan if you have no credit. You might have to produce more documents and your rate will be higher. But getting an auto loan if you have very little credit history is possible and ironically, once you have one, and you make timely payments, you will start to build one quickly.
Credit From Retailers
You can also build a credit history by taking on credit from a retailer. For example, you can get credit from Best Buy and purchase a computer on credit. It is best that you already have the money to pay for it. Just make a large down payment and take a small amount on credit. As long as you pay your bills on time, and the retailer reports to the credit bureaus, you will start to build your credit history. Understand that rates may be higher than traditional credit cards, so be sure to pay the balance in full each month.
Getting A Credit Card
If you have no credit history, chances are that you will not get any credit card offers in the mail. That is not the end of the world. To get on the path to getting a credit card, you would have to apply for a secured credit card. Secured credit cards require that you deposit an amount with the credit card issuer that acts as a collateral. Your credit limit will be that amount and there is also an annual fee to pay. Once you have built up a decent credit history, then regular no annual fee unsecured credit card offers will be available to you. Choose your secured credit card wisely as you are sending them your own money upfront. Make sure you are working with a reputable company.
The exception to this is if you are a college student. College students can start building their credit instead by getting a college student credit card. In fact, being in college is the only time where you can get approved for a regular unsecured credit card with no annual fee. With the new CARD regulations, students now need proof of income or need a parent as a co-signer (to discourage students from getting deep into credit card debt).
Piggying Backing On Others
Aside from getting credit on your own, you can also piggy back on others by being a joint account holder or in the case of credit cards, even an authorized user. Authorized User On A Credit Card - If you are an authorized user on a credit card, you can also build your credit history. From my experience, this is one of the least effective ways to build your credit because scores rise more slowly than with a card that just belongs to you. I know of folks who were authorized users of their spouse credit cards when they have no credit, but they hardly got any credit card offers in the mail or they would get rejected on an application for lack of credit history.
Joint Mortgage Holder
Even if you have no credit history, you can be a joint home owner (either at the onset or even after the transaction). Having a mortgage on your credit report (from personal experience) builds your credit more quickly. And unlike being an authorized user on a credit card, being a joint mortgage or co-home owner is more likely to get you credit card junk mail!
While FICO scores are very important in our society, it is not the end all and be all if you do not have credit. You could still get access to credit, whether it is a mortgage, an auto loan or even credit cards. You simply have to bear in mind that your rates will be higher and you may not get the absolute best deals. But once you take on some credit, your scores will improve. It is best however to establish some history before you take on a large credit like a mortgage.
Although you could get a mortgage without a credit history, you could help yourself to get a better rate by making the effort to build a history and a better score first. Credit cards are probably the best and easiest way. Although credit cards build credit history, you can use them wihtout getting into long term debt. Simply pay your bills on time and you are on your way. But always remember, life even without a credit history in today's crazy FICO score driven era isn't the end of the world.
This post is written by Mr Credit Card from www.askmrcreditcard.com, a site that writes lots of credit card reviews. Visit the site for more information about Secured Credit Cards or College Student Credit Cards.