Establishing credit from nothing

ren · #1 (**permalink**) 01-01-2007, 10:16 PM

One of my roommate's friends has realized he's painted himself into a bit of a corner. He's somehow managed to reach the advanced age of 27 without a credit history.

You read that right -- no credit history. Nothing. So he's trying to figure out how to establish one so that he can, you know, have the convenience of credit, maybe do something wacky like buy a house in a few years. He has a good job and pays all his utilities/rent on time. If anyone can help, I figure you guys will have good ideas.

What he has tried:
-- His credit union (since HS!) shot him down for a credit card. The most they were willing to do was give him a debit card.
-- He's tried a couple other credit card companies, including Capital One (man, I thought they gave anyone who could fog a mirror credit cards, turns out I was wrong).

Ideas I have (tell me if they're bad):
-- Secured credit cards. I know they don't look that good on your credit report, but at least he'd have something. Can't you eventually convert a secured card to a normal credit card?
-- Department store cards, are they more lenient?
-- Possibly using once of his CDs at the credit union as collateral for a personal loan. Probably the most expensive option, due to the interest, but it might not be that bad, with CD rates still high.

You know, I'm pretty used to wanting to hit people for getting credit cards in college, but I guess the "YAY! A free t-shirt!" crowd may actually be ahead of someone who has lived within his means.

aurielle · #2 (**permalink**) 01-01-2007, 10:35 PM

Hiya Ren, you live about a 3 hour drive from me

I think the secured card is a good idea. I don't think they report as secured on your credit reports.
How I began to get my credit re-established (again) was I got a gas card from Valero (which was Diamond Shamrock at the time) I had to send in $20 with the application and buy gas on it every month for one year, then they upgraded me. I started getting other credit card solicitations after that. I don't know if Valero still does it as this was at least 7 years ago, but its worth checking out. I picked up an app right at the gas station.

Budgeteer · #3 (**permalink**) 01-02-2007, 07:31 AM

I'd probably try one or two other cards before going to a secured card. I'd say try Discover and maybe a store card, although I'm not sure that most store cards are more lenient.

Does you friend have a bank account? They are listed on your credit report. I was always under the impression that they had some sort of influence on your score.

tinapbeana · #4 (**permalink**) 01-02-2007, 07:53 AM

get a store card (i.e. target), which typically has a low limit. similarly, most jewelry stores will finance items. or furniture stores.

i would also look into the secured loan as the interest he would loose on the money is probably going to be a smaller financial impact that having no credit history...

kristinecfp · #5 (**permalink**) 01-02-2007, 08:33 AM

A couple more suggestions...

Does he have anyone he can ask to add him to their existing credit card? This would most likely be a parent or other family member who already has good credit. By adding him to their credit card, it would be reported on his credit file as well.

Also, if he is unable to secure a credit card or loan based on his own credit, does he have anyone who would be willing to cosign for him? This is another way he can establish credit.

Budgeteer · #6 (**permalink**) 01-02-2007, 11:48 AM

Quote:

Originally Posted by kristinecfp

Does he have anyone he can ask to add him to their existing credit card? This would most likely be a parent or other family member who already has good credit. By adding him to their credit card, it would be reported on his credit file as well.

This is a *great* idea. I can't believe I forgot to mention it.

Broken Arrow · #7 (**permalink**) 01-02-2007, 07:06 PM

Quote:

Originally Posted by Budgeteer

This is a *great* idea. I can't believe I forgot to mention it.

Yes, I am planning to do the same for my kids.

That and a secured credit card, which is typically much easier to get. I recommend Orchard Bank.

tabbycat31 · #8 (**permalink**) 01-02-2007, 07:19 PM

do you have Kohls nearby? I used to work for them, and they're very pushy with credit. THeir limits start at $300, and I know people who were approved for that the day they turned 18. Charge about one/two items a month, then pay the balance in cash right at the register.

ren · #9 (**permalink**) 01-02-2007, 09:23 PM

Thanks for the advice guys! I'm sending him the link.

Hypersion · #10 (**permalink**) 01-02-2007, 11:52 PM

Try getting a student citi or amex card.

PRICEPLUS · #11 (**permalink**) 01-03-2007, 12:03 AM

I started way back when with an AMEX card! My daughter is on my CC account which has an excellent record. When she is ready she'll open her own accounts and have a good record based onmy card!

smartatmoney · #12 (**permalink**) 01-03-2007, 02:40 PM

Quote:

Originally Posted by kristinecfp

A couple more suggestions...

Does he have anyone he can ask to add him to their existing credit card? This would most likely be a parent or other family member who already has good credit. By adding him to their credit card, it would be reported on his credit file as well.

Also, if he is unable to secure a credit card or loan based on his own credit, does he have anyone who would be willing to cosign for him? This is another way he can establish credit.

This is the easiest way to go about it. My wife had no credit history when we got married. After I added her to my credit card... it wasn't long before she was getting offers.

I would PASS on cosigning it's a bad idea. I never cosign for anyone. Ever.

PRICEPLUS · #13 (**permalink**) 01-03-2007, 02:57 PM

Co signing can bring big heartaches financially so tread carefully!

Keen · #14 (**permalink**) 04-05-2007, 02:48 PM

You don't need a credit score to buy a house...or even get a mortgage. Sounds like your pal has a good imcome and no debt, I am not sure why he would want to go to all this effort just to get a "credit score"

Just a thought...

vsjhoc · #15 (**permalink**) 04-05-2007, 03:28 PM

Quote:

Originally Posted by Keen

You don't need a credit score to buy a house...or even get a mortgage. Sounds like your pal has a good imcome and no debt, I am not sure why he would want to go to all this effort just to get a "credit score"

Just a thought...

OK, I'll bite. How does that work, assuming he doesn't have a couple hundred thousand dollars in cash?

Keen · #16 (**permalink**) 04-05-2007, 03:44 PM

I am saying you don't need a credit score to buy a house (with cash) or if that is not an option and you do need a mortgage you still don't need a credit score.

Pay your bills on time, (rent, utilites, etc.) and when the time comes find a broker/lender that does Manual Underwriting for mortgage applications.

Homebody · #17 (**permalink**) 04-05-2007, 06:04 PM

Put oldest and youngest daughers on a card of ours when they started college. MD we cosigned an auto loan in 2000 for her Honda Accord that she paid off in 3 years.

I would only cosign for my children. His parents may be willing to cosign a small loan that he could bank and pay back.