You have received your denial letter and the reason for decline is an insufficient credit history. But how do you get credit if no one will give you credit?
Having an insufficient credit history is much better than having bad credit. When you have an insufficient credit history you need to add additional tradelines and over time so you can build a sufficient credit history. 1 in 5 Americans has no credit score at all according to government studies. An estimated 11% of the adult population has no credit record. Over 8% of adults have too insufficient of a credit history to generate a credit score.
What Does “Insufficient Credit” Mean?
You may receive a letter that states, “insufficient number of credit references” or “lack of revolving accounts”. This means that you don’t have enough credit accounts on your credit report to meet that lender’s particular qualifications.
It essentially means that there is not enough data about how you handle credit to determine if you are creditworthy. You may not even have a credit score. This is called being Credit Invisible.
When I was younger, I would always roll my eyes when I would hear someone say well at least you don’t have bad credit. What difference does it make if you can not get any new credit approved?
A no is a no.
Being told your credit is insufficient is sometimes even more frustrating because you feel like no one will even give you a shot! But in the world of credit, you have to take control of your situation and create the credit file you need.
We will go over the 8 tips to take you from Insufficient Credit to Sufficient Credit!
Pay Your Bills On Time
I know this does not need to be said … but it does. Many people do not really understand the importance of paying your bills on time. I was out of town, or forgot is completely lost when a potential creditor is looking at your credit report.
They will never see the reason why you were late, just that you are late. This is the number one rule in building a sufficient credit history.
Report Your Utilities, Cell Phone Bill and Rent To a Credit Reporting Agency
It is becoming easier in our technology-driven world to report these things to a credit reporting agency now than it was years ago. Companies like Experian have also created Experian Boost so that folks like you can add non-traditional tradelines to your credit report.
There are also other companies that you can pay who will report your rent to the credit bureaus. The cost will run you around $100 a year to do so.
You can also just ask. Some creditors that do not normally report may be willing to report at your request.
Apply For A Secured Credit Card
This has to be step one when adding tradelines to create a credit history. It is the easiest way to get a tradeline on your account. Time is of the essence, the longer your credit history the better. You lose time by procrastinating.
There are many great secured credit cards out there that can help you start building your credit. But you need to understand how they work and which cards are the best to deal with.
In order to get a secured credit card, you will be required to put a security deposit in a savings account. It will be your savings account but you will not be able to get the money out until the card is paid in full and made into an unsecured credit card. It usually takes 6 months to a year of on-time payments for that to happen.
Choose a secured credit card with no annual fees.
This is a big one and I would see it all the time. Someone opens a credit card that specializes in approving people with bad or no credit. They charge an annual fee of $79-99 per year for the pleasure of carrying their card.
You think to yourself that is a small price to pay to get a credit card when you are desperate. These cards typically have lower credit limits and the annual fee does not go away … not to mention the high-interest rates.
Once the card becomes unsecured and now you have access to many different bank cards all of a sudden that annual fee is the same as a dinner out and you are sick of paying it.
You do not want to close any accounts and lose the history you just obtained on your credit report. When you open your first credit card it will be tempting to open anything you can get your hands on.
Annual fees can be good with the credit cards that offer points and benefits that outweigh the cost of the card. But after some time, paying annual fees gets old when all you are getting out of the deal is a high-interest credit card with a low credit limit. You will want to stop paying them and have no choice but to close the account which can affect your credit score negatively.
Opening the right accounts from the beginning is so important. Our two favorites are Capital One and the Discover it Cards.
Get A Credit Builder Loan
These loans essentially operate just like a secured credit card but they are a personal installment loan.
Your bank will require that you open a savings account and place the same amount as the loan amount in the new savings account. You will not be able to access those funds until the loan is paid off.
Getting a credit-builder personal loan is a smart move because you will be adding an installment loan to your credit mix. Even though it only reflects in 10% of your score, we are going for the gold and want the best score possible in the least amount of time. Credit mix is not our main focus but we do not want to ignore it either,
An installment loan shows that you are able to handle many different types of credit versus someone who just has a couple of credit cards.
Also, some lender guidelines will expect you to have minimum credit limits to qualify for larger loans, like a mortgage. As an example, the lender may require that you have had access to a $2500 credit limit for 2 years. Or in the case of someone who is purchasing an RV, you will need to have borrowed more than $50k in the past.
Why? Because statistically, the percentage of defaults was less with people who had that credit experience. Credit mix matters to the lenders as well.
Get a Retail Store Credit Card
Often getting approved for a retail store credit card is easier than a Visa or Mastercard. This can include stores like Best Buy or Macy’s, even gas credit cards like Shell, that offer a credit card to shop with exclusively at their store.
Many of these stores also offer a Visa for customers who are looking for a larger spending limit and points so make sure you are applying for the right one.
Retails credit cards often have lower limits that Visa or Mastercard credit cards. They can only be used at the store they are for so they are a little different than regular credit cards.
Find A Co-signer
One way to get approved for credit is to bring in a reliable co-signer to go on the loan with you. My daughter did this when she was purchasing her first car. She needed her dad to co-sign with her so she could get a 1st time car buyer loan. The loan offered a really low interest rate if someone would vouch for her.
Become An Authorized User
Becoming an authorized user on a friend or family member’s credit cards is the fastest way to obtain credit on a credit report and raise your score quickly. We show you everything there is to know about becoming an authorized user.
Within a few days to a couple of weeks, you can have a credit file and a really nice credit score if you are able to find a family member or friend to add you to their existing credit cards. Whichever cards they add you to, their credit history and information will also report to your credit history giving you the instant credit history you are looking for. The best part is this is legal.
Buy Tradelines From A Tradeline Company
You can also do what is called purchasing tradelines. There are companies that will facilitate this for you with a stranger that you have never met and will add you as an authorized user to their credit card.
There is a cost involved with this method so it is much better to convince a friend or family member to add you. You may pay from $500 – $1500 for a decent tradeline. There are accounts you can get for less than $500 but they go quickly and are difficult to come by.
The cost goes up depending on the age of the card and the credit limit. The primary owner of the card agrees not to spend more than 15% of their credit limit so you will be getting a premium tradeline on your credit report for the next few months.
Most people purchase the tradeline for at least 60 days. It can remain on your credit report for up to 6 months. It will depend on how the credit card company handles their reporting.
There are some risks to the credit card owner. The banks frown upon this practice so the card issuing bank may close the card if they figure out the card is being used in this way. But this rarely happens in a familial situation.
Moving Forward With Insufficient Credit
The bottom line is that being credit invisible and having an insufficient credit file is frustrating and feels like it can be worse than having bad credit. You will want to take steps to start building your credit by using our tips. The longer you wait the longer you will have to become credit visible and get the credit score you deserve!
Source: Who are the credit invisible
Pin it for later!
