If you've heard horror stories of people who maxed out credit cards and spent years digging their way out of debt, you might be afraid to have any credit at all. But when it comes time to make big purchases, such as picking your very first vehicle, not having any credit history can work against you as much as having a bad credit history. What's a borrower to do? Building up credit and proving your financial trustworthiness is a long game, and there are small steps you can take right now that'll put you on the path toward building a positive credit history.
- Open at least one credit account, and pay it off every month. Make small regular purchases using this account, but keep your balances low or at $0. Consider setting up automatic payments, so you never miss a due date. And remember, don't open too many accounts all at once; multiple credit inquiries over a short span of time raises red flags at the credit bureau.
- If you do have unused credit accounts, keep them open. You might have old store accounts or high-interest rate credit cards that you're no longer actively using. Resist the urge to close them. Part of your credit rating is determined by how much of your credit you're actively using versus the total available credit. Their available balances go toward boosting your total credit. An occasional purchase using these accounts (and paid off immediately) can ensure the banks won't close them due to non-use.
- If other lenders have closed their doors to you, consider a secured line of credit. With a secured line of credit, you put collateral, such as a home or a car, up against your loan. Creditors may offer lower interest rates and higher spending limits on a secured line of credit.
Think you might not have the credit you need to buy a car? Talk to us at Hometown Auto. We can help you plan a route to the car of your dreams.