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How Do “Credit Ghosts” Build a Credit History?

Here at Christmas time, finding extra cash is more important than ever. The problem of how to get a credit card with no credit plagues many young adults. It’s natural to wonder, “how do I build good credit without a credit card?” ways exist to get around this problem if you know what you’re doing.

This article is written for students and other millennials needing to build their credit. Read on and the advice is just as timely and useful for you good folks.

I specifically write to the credit ghosts out there today. These people might be a little bit older, but are facing similar obstacles as the people just starting out.

Are You a Credit Ghost?

A credit ghost is someone who simply never needed nor wanted credit. They never applied for a VISA or MasterCard. They paid cash for vehicles, or had someone co-sign for them. They lived in apartments, instead of acquiring a mortgage.

Avoid Becoming a Credit Ghost - Photo Courtsey of Angela Deane

Avoid Becoming a Credit Ghost

A credit ghost tends to be a good risk, because they’ve never owed a dime in their life. At the same time, their credit score is worse than most of the so-called bad borrowers. Luckily for all people applying for a charge card during the holiday season, retail stores and card companies want your business. You might have to jump through a few more hoops, but those hoops are easily maneuvered.

Remember, the credit card companies want to usher new customers into their system. Eventually, they’ll take a risk that you’ll be a payer and not a defaulter.

Here are the steps you can take to make sure they take that risk, no matter what time of the year it is. Credit card companies want you spending money through them, so they’ll oblige if you take a few easy steps.

Sign up for a Debit Card – Build a Good Rep

A debit card is similar to a credit card, except you pay as you go. You don’t run up a debt, because the card doesn’t work unless you have money in your account. Debit cards are becoming bigger all the time, because so many people out there need the convenience of a plastic scan card, but don’t have the credit score to afford a good credit card from VISA, Mastercard, or especially an American Express card.

When you get a debit card, remember to get one that reports to the credit reporting agencies. The average debit card doesn’t, so you’re going to need to search a little bit. Go to your local bank and ask about one of these debit cards.

To read more about prepaid cards, check out these options, including 2-3 options each from Visa and Mastercard.

Get a Secured Credit Card

An even better option is to sign up for a secured credit card. To do this, you’ll have to put up collateral. Collateral is something you own that the bank can take if you don’t pay your debts. Most credit cards are “unsecured”, meaning no collateral is attached to them. If you put up collateral, this substitutes for having a good credit rating. Just remember to pay off your secured credit card debt or your local bank is going to own your XBox 360.

When you pay off your secured credit, this usually goes on your credit history, so you build up your rating. Make sure your creditor reports this activity to the credit reporting agencies. The secured credit card is a way people with no credit start a credit history and how people with a bad credit history start to turn around their credit life.

If secured credit cards sound interesting to you, read more about secured credit brands like these and others.

  • Applied Bank Secured Visa Gold Credit Card
  • Capital One Venture Secured Mastercard Rewards Credit Card
  • Orchard Bank Secured MasterCard – SM Mastercard

Take out a Bank Loan

Another way young people build up their positive credit history is to take out a bank loan and repay it. You don’t have to take out a huge loan, but you’re going to have to pay off the debt and the interest on that loan, too. Imagine you take out a $500 loan from your bank and you get an interest rate of 15%. That means you’ll end up paying $575 to pay off the loan. If you can do that, it’s worth those $75 to have that paid loan show up on your credit history and therefore credit score.

Establishing Credit with No Spending Record

These are the best ways to establish good credit when you have no credit history at all. These tips don’t go just for 18 year olds just getting started. “Credit ghosts” are people who’ve paid cash their whole life and always paid as they go. These people should have a good credit rating, but they actually don’t, because they’ve simply never showed up on credit reports. So if you’re a 50 year old credit ghost wanting to start a credit history, take this money advice as well.

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