Managing finances and building credit can be challenging for individuals with minimal or no credit history. From applying for auto, mortgage, or personal loans to obtaining credit cards and other financial products, individuals with thin or no credit have fewer choices and often face higher costs. However, several strategies can empower such individuals to enhance their financial standing and lay the groundwork for future creditworthiness. Here are five valuable financial strategies tailored to individuals with limited or no credit history.
Build a strong financial foundation by starting with positive habits: monitor expenses, set and spend within a budget, implement automated bill payments when possible, and create an emergency fund. These practices offer a clear view on available funds and enable individuals to allocate resources toward activities that contribute to establishing or improving a credit score.
There are several ways to establish a credit history for the first time. Apply for a personal loan or credit card which doesn’t require previous credit history, and which reports to credit bureaus; Oportun offers both. These products may have lower loan sizes or limits, and slightly higher interest rates, but are a great starting point. Secured credit cards can also serve to establish credit scores. Unlike conventional credit cards, secured cards require a cash deposit as collateral, which determines the credit limit. Another option is to become an authorized user on someone else’s credit card, which is a particularly great way for parents to help their children establish credit when they turn 18. Both benefit, or feel the consequences from, each other’s repayment behavior. In all these options, responsible repayment builds a positive credit history and showcases creditworthiness to lenders. Gradually, individuals may become eligible for credit with better and more flexible terms, further building their creditworthiness.
An individual’s payment history is one of the most influential factors credit bureaus use when determining their credit score. Therefore, people should make all their payments on time, regardless of whether it’s a credit card payment, loan payment, or utility bill. Skipping payments or not paying bills on time can hurt a person’s credit score, and it takes a long time to recover from this activity’s impact on an individual’s credit score. Being diligent about timely payments is vital for maintaining a positive credit profile.
Credit utilization describes the percentage of credit an individual uses compared to their available credit. For example, if $300 has been charged to a credit card with a limit of $1,000, the consumer has used 30% of available credit. Consistently surpassing 30% of available credit can negatively affect credit scores. Individuals must exercise prudence in credit utilization, ensuring it remains below the 30% threshold. To achieve this, individuals should pay off their balance in full, use multiple cards wisely, and increase their credit limits—without spending more money—when possible.
When individuals regularly check their credit report, they understand the importance of improving their financial standing. Knowing what’s on their credit report can help identify any discrepancies or errors that could negatively impact their score. Individuals can also identify suspicious activity, such as inquiries from lenders they didn’t apply to or transactions they don’t recognize. By monitoring their credit report proactively, individuals can safeguard their financial health and take appropriate actions to address any issues that may arise.
Oportun, a mission-driven fintech and digital banking platform, uses advanced technology and years of data to offer credit at affordable rates to hardworking people with thin or no credit histories. According to the 2023 True Cost of a Loan Study conducted by the Financial Health Network (FHN), Oportun’s loan products on average are eight times less expensive than other alternatives, like payday and title loans, for a typical borrower. These loans are designed to help borrowers establish credit history and improve their personal financial lives.