You need credit, but you don't have a history of major purchases such as a car.
Feel stuck? You're not. You're just caught up in one of the no-credit myths. In this article, we'll address the three most common myths and shed some light on what your situation really is.
1. No credit equals bad credit.
In the simplest terms, "no credit" means you don't have a credit history. Your credit isn't bad or excellent; you just haven't made purchases that establish credit. One of the ways to build a solid credit history is to make timely payments on an installment loan. If you consistently make payments on a car loan for example, your history will grow over time and give lenders the assurance that you know how to manage credit.
However, without a credit history it is difficult for a credit report to reflect enough information to form an assessment of your credit potential. The most popular assessment is the Fair, Isaac & Co., or FICO, score. Lenders use this score to help determine whether to grant you a loan.
Fortunately, FICO developed the Expansion score to help new-to-credit borrowers. It looks at information not included on a regular credit report, including utility and rental payments, payday loans and use of a checking account. Ask your lender if they use this score.
2. I'm the only one without credit.
Everyone starts a financial journey in the same place—without any credit. We each take different paths with the decisions we make, but initially no one has credit.
There are several perfectly normal situations in which you may find yourself without credit. You could be a college student or young adult looking to finance your first car. You may have recently arrived in the United States and need to establish some buying power. A relationship change may mean that, for the first time, you're going to make purchases that were once only in your spouse's name. Or perhaps you've always lived a cash-based life, but suddenly need a loan. Regardless of the reason you don't have credit, you're not alone.
3. There are no options.
You may have been turned down for credit in the past or assumed it takes credit to get credit, but there are good financing options available to you when purchasing a car.
Many dealers offer "First-Time Buyer" programs for people who have challenges getting a loan because of limited credit or no credit history at all. Dealers will work hard to find vehicles that are best suited to your financial and automotive needs regardless of your credit experience. In addition to offering competitive interest rates and payment plans, programs such as these can serve as the first step to establishing a solid credit history.
If you're interested in a First-Time Buyer program, there are a few questions you should ask dealers:
- Will I need a co-signer?
- Is there a minimum length of employment history?
- Is there a minimum age requirement?
- Is proof of auto insurance required?
- Does the program apply to new, used and certified vehicles?
Ready to explore your options? Find dealers in your area.
Establishing credit can be an exciting journey. As you begin yours, remember:
1.) You don't automatically have bad credit;
2.) Everyone starts without credit; and
3.) You have lots of options when it comes to purchasing a car.
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