To build credit, you have to get approved for credit. But often, you’ll get rejected if you don’t have a solid credit history — which is incredibly frustrating if you’ve never had credit or you’re recovering from past mistakes.
If you’ve been denied for credit too many times to count, you’ve come to the right place. Keep reading to learn how to build credit when you keep getting rejected.
5 Ways to Build Good Credit When You’ve Been Denied for Everything
Before you apply for credit again, get a copy of your free credit reports from each of the three bureaus at AnnualCreditReport.com. As many as 1 in 5 reports contain errors, so you need to make sure you’re not being rejected due to faulty information. If you spot mistakes, like an account you don’t recognize or an incorrect balance, dispute the information directly with the credit bureau.
Once you’ve confirmed that your credit report is accurate, you’ll need to start building credit. The only way you’ll do so is if you have an account that’s regularly reported to the bureaus. Here are five strategies to try.
1. Open a Secured Credit Card
One of the easiest ways to rebuild credit is by opening a secured credit card. You put down a small deposit — say $200 or $300 — and that becomes your line of credit. Since you’re putting down a deposit, the risk to the lender is minimal. That’s why your odds of approval are much higher compared to with a traditional card.
Always keep credit card balances below 30% of your open credit. The percentage of credit you’re using is called your credit utilization ratio, and you want that number to be as low as possible.
2. Get a Credit Builder Loan
A credit builder loan is like a regular loan in reverse. Typically with a loan, you get money up front and then make payments on it. With a credit builder loan, you make payments on the loan, but they go into a bank account. Once you’ve paid off the loan, you finally get your money.
Most big banks don’t offer credit builder loans. Check with a local credit union or an online bank about whether they have this option.
Making on-time payments is the No. 1 thing that will help your credit. Your payment history determines 35% of your score.
3. Use a Rent Reporting Service
Your housing payment is typically your largest expense. But if you rent your home, your rent payments probably aren’t helping your credit score because most landlords don’t report payments to the bureaus.
One option is to use a rent reporting service, like Rent Reporters, Credit Rent Boost or Rental Kharma to send the bureaus records showing you’ve paid your rent. Your landlord may need to verify your payments.
Before you sign up, look carefully at all the fees involved. Many services have a setup fee on top of a monthly fee.
4. Get a Co-Signer
If you can’t qualify for credit on your own, you may be able to get a family member or friend who has good credit to co-sign for you. A co-signer accepts responsibility for making payments if you fail to. Most major credit cards no longer accept co-signers, so this is much more common when you’re applying for a loan.
Only choose this option if you’re 100% confident that you can make payments. Set up automatic payments so you don’t forget. It’s not just your credit on the line here. If you miss payments, you’ll take down the credit score of the person who cared about you enough to co-sign.
5. Become an Authorized User
When someone adds you as an authorized user to their credit card, you’re allowed to use the account but you’re not responsible for payments. Sometimes parents will add their child as an authorized user to help them establish credit. If someone is willing to make you an authorized user, check with the credit card company to see if they’ll report the status to the bureaus.
Becoming an authorized user can help you establish a credit footprint. But because lenders know you’re not on the hook for payments, it probably won’t make a huge difference in determining whether you get approved for credit in the future.
How Often Should You Apply for Credit?
Applying for new credit too frequently can hurt your credit score. Each application results in a hard inquiry on your credit report, which can drop your score by a few points. (Note: If you apply for a specific type of credit, like a mortgage or car loan, multiple times within a short window, the bureaus assume you’re rate shopping and treat the applications as a single inquiry.)
A good rule of thumb is to wait about six months between credit applications. Once you get approved, focus on making on-time payments and you’ll gradually see your credit improve.
Robin Hartill is a certified financial planner and a senior writer at Codetic. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].