Consumers who are just starting adulthood face a Catch-22: Using a credit card smartly is one of the best and most effective ways to build your credit history and develop excellent credit scores. But it’s hard to get a credit card if you don’t have a credit history.
However, there are ways to build credit even if you don’t have a credit card. Here are four things to do when you want access to credit cards in order to build a positive credit history—but you can’t get one because you don’t already have any credit history:
1. Apply for a Secured Credit Card
Secured credit cards are perfect for users trying to build a payment history from the ground up. They work like other credit cards when you make purchases, but you must make a cash deposit to backup your usage. That deposit, which is typically the same amount as your credit limit, is what “secures” the card.
Otherwise, you use the card in the same way: Make purchases, pay them off by the due date and pay interest on any charges you don’t pay off in full. If you don’t make your payments, however, your secured deposit is deducted.
Typically, you can use a secured card for a period of time in order to build up a credit history, after which you can convert the card to an unsecured option or apply for a regular credit card.
2. Get a Cosigner on a Credit Card
You can also apply for a credit card with a cosigner who does have a solid payment history. This is a good option for students who are just starting out and can get a card with their parents. However, the cosigner should know that if you do miss payments or carry a huge balance, their credit scores will also be affected.
3. Become an Authorized User of Someone Else’s Credit Card
Another option is to piggyback off an already open account instead of getting a cosigner. A parent, spouse or other family members can add you to their credit card account with a separate card.
You will build a credit history based on the usage of that card, but the primary cardholder will be the one legally on the hook for paying off any charges. If you’re going with this method, be sure to establish rules in advance of how you will use the card with the primary holder.
4. Build a Credit History With Your Rental Payments
There are some rent-reporting services that send the information for your monthly rent payments to the credit bureaus in order to establish a credit history. They may not always be counted by every credit scoring model, but it’s a good way build history based on rent you already pay before you have a mortgage.
Experian’s RentBureau is one such service. Check with your management company or landlord to see if they work with Experian or other similar services. It’s important to note that if you do miss a rent payment, that will negatively impact you just as other late credit cards or loan payments do.