MoneyTalk: Building a Positive Credit History

Show Notes
What advantages does having access to credit provide?
  • The ability to buy something (e.g., appliance) or do something (e.g., travel) today and pay for it later.
  • Flexibility to make purchases and take advantage of opportunities without cash in hand.
  • Fewer hassles and expenses to rent an apartment and get service credit from utility companies.
  • Peace of mind that you have a back-up line of credit, if needed.
Why is a Positive Credit History So Important?
  • A positive credit history helps people get credit, rent apartments, and save on auto insurance premiums.
  • Credit is also important to purchase goods and services and make travel reservations online.
  • Credit provides leverage (access to other people’s money) to buy “big ticket” items like a house.
What does being “credit invisible” mean?
  • “Credit invisible” means someone does not have any recorded history with the “Big Three” credit bureaus.
  • One in 10 adults (26 million Americans) are “credit invisible” according to the @CFPB.
What is a “thin file?”
  • “Thin file” means someone has a limited credit history, which makes it difficult to generate a credit score.
  • Having a “thin file,” like being credit invisible, makes it difficult for people to get approved for credit.
  • Some lenders might consider other payment info such as paid bills, bank statements, and references.
What are some reasons a person may be credit invisible or have a thin credit file?
  • Age is one reason: young consumers who have not previously used credit and have no credit history.
  • Immigrants to the U.S. often face this challenge; like young adults, they have no prior credit history.
  • People who have not had credit in their own name (for whatever reason) may be invisible to lenders.
What financial challenges do people face if they have a thin credit file or are credit invisible?
  • Consumers w/o a credit history may not be able to access utility services without making a large deposit.
  • It may be very difficult to get a loan, get a cell phone, or rent an apartment without a credit history.
How can you build your credit report if you have a thin file or no credit history?
  • Apply for a secured credit card; deposit the amount of money needed to secure your credit line (e.g., $500).
  • Apply for a small (a.k.a., credit builder) loan of $300-$1,000 over 6-24 months and make timely payments.
  • Get approved for a retail store or gas station credit card as an initial “stepping stone” to a national bankcard.
  • Become an authorized user on the credit card of someone with a positive credit history (e.g., a parent).
Have you ever personally experienced a life event that impacted your access to credit?
  • I froze all my credit after the Equifax hack but needed to unfreeze it to get new utility services.
  • I also had to unfreeze my credit again to be able to open a savings account with a national bank.
  • I had to pay a $250 utility company security deposit because I could not unfreeze my credit immediately.
Who can help you establish credit if you can’t open an account with a lender?
  • Reach out to a community bank or credit union and apply for a small-dollar loan.
  • Ask a family member for assistance as a lender, as a co-signer, or to make you an authorized user