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Dear Debt Adviser,
I keep getting turned down when applying for financing at various institutions. For instance, I can't get approved to finance a bed at the local Furniture Mart. In addition, I can't get approved for a credit card.
To my knowledge I have no outstanding debts to anyone. I have never financed anything before. I have never owned a credit card (but would like one).
I checked my free credit report and for some reason no report can be furnished. Is this because I have never made payments on anything? How can I get a credit card? What do you advise?
-- Nicole
Dear Nicole,
I'm not sure a person can be too rich. But you are an example of a person who is too thin! You have what is referred to in the credit industry as a "thin credit file." In other words, you are a person with little, if any, history in your credit bureau file.
However, don't be dismayed. You have lots of company. If you consider all the people who have never used the type of credit traditionally reported to the credit bureaus -- including many of the recently divorced or widowed, new college graduates, newlyweds and immigrants (legal or otherwise) -- you are part of a group of up to 70 million adults.
Those millions add up to an attractive market for lenders who are looking for new alternatives to oversaturated credit card users.
Your situation is a classic example of a credit Catch-22. Have you ever heard someone say, "How can I get any experience if every time I apply for a job I'm told I must have experience to qualify for the position?"
Creditors apply the same logic when they want some sort of prior credit experience to review before they extend credit to you themselves.
The reason you did not receive a credit report is because you do not currently use any of the credit products generally included in a credit report. You and the millions like you are often referred to as the "underbanked."
Because there are so many underbanked customers to be won over, lenders are more willing than ever before to stretch in order to win your business.
A potential creditor can use specialized reporting agencies to learn more about how you handle your finances. For example, your checking account use can be reviewed with one of the check bureaus, such as TeleCheck. Your rental history can be obtained from an agency like National Tenant Network.
In addition, a newer credit scoring
model called VantageScore requires less of a history
on individuals (as little as a single credit line
or a six-month credit history) than the traditional
FICO score to give lenders the comfort of a predictive
score. FICO also has come out with an Expansion
Score for "thin file" people just like you.
Several opportunities are available to help you get needed experience with credit so you can establish your credit footprint. If you do not currently have a bank account, start there first. Open a no-fee checking account and a savings account with a local bank or credit union.
Next, apply for a secured credit card. These cards work the same as any other credit card -- the only difference is the lender is willing to issue you the card because you are securing the credit limit with a deposit of your own money.
Be sure the card you choose will report your activity on the card to the major three credit bureaus and shop around for the best terms. They can vary a lot.
Once you have built up money in your savings account, you can apply for a small loan with your bank that is secured with the money in your savings account. This would be an installment loan with regular monthly payments.
Your goal is to have different types
of accounts reported to the bureaus, including
revolving (credit card) and installment loans.
This will help build your credit score.
Remember, while it may not take too long to fatten up your credit file, it is very important to make all payments on time, every time.
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