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I'm very fortunate to have had no need for a credit card and I don't own one (debit card only), I have no debt and an excellent job. I attempted to open an account with a respected online-only bank which failed due to "No debit data found, no open, paid, or closed trade lines found and no credit score". I was told I need a score of 600 for an interest checking account.

My family has excellent credit scores and habits (cards paid off in full every month, etc.). What's the fastest way I can reach my goal number? Would it be to have them add me as an authorized user to their lines of credit? I'm completely ignorant of the logistics here, and hard facts seem difficult to find. For instance if they do add me as an authorized user, given that they have excellent habits, what conditions are optimal - multiple lines, high limits, some sort of ratio, other factors?

Should I additionally get a credit card from my current bank or other, or would the above be sufficient? Assume that the card is purely for building my score and I don't actually need any credit, any balance will be paid in full every month and so forth. What kind of a card should I seek out and how should I be using it? (I would prefer not to own a credit card from my current bank or any other brick & mortar bank, but I'll do what it takes.)

In the meantime I may open a joint account as a secondary with the online bank, but I was told I will not be able to build credit this way, so the question still applies.

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I hope I've made this question sufficiently distinct, given that I'm not seeking credit (just score), currently have no score, don't particularly desire a credit card, and have strong resources/options at my disposal. I just want to bank in the 21st century. –  Christopher Galpin Nov 14 '12 at 6:29
    
Before posting I found this: lifehacker.com/5880453/… but it doesn't answer the specifics I've asked about here. –  Christopher Galpin Nov 14 '12 at 6:36
    
How do you have a debit card without an account with the bank from which the money is debited? Is this from a joint account with a parent or sibling and the SSN on that account is of the other party? –  Dilip Sarwate Nov 14 '12 at 13:03
    
@DilipSarwate Yes it's a joint account as you described, although I thought I was the primary, I may have been mistaken. –  Christopher Galpin Nov 14 '12 at 15:29
    
It may be worth calling the bank to see if there's a way to get an account using some alternative identification. –  Brendan Long Nov 14 '12 at 22:54

4 Answers 4

up vote 13 down vote accepted

I'm taking from your profile that you're in the US. Well, in the US the basic assumption is that if you don't have debt - that's because you're not worthy of lending money to. I'm not sure how we came up to this, but that's the situation right now.

Credit report is used not only to estimate your credit worthiness, but also to verify your identity. The US is the only country in the Western world that doesn't have a national system of identification. As such, in order to identify you on-line - credit report is used, under the assumption that only you would know the information there (and that's why the identity theft is so easy in the US, this assumption is clearly incorrect). 21st century? Not in this country.

These two issues combined lead to your problem: You cannot get credit (even though you don't need one) without a credit report, and your identity cannot be verified without physical presence. Yet, you cannot get a credit report without first obtaining some credit - because there's nothing to report.

How to break the cycle?

The article doesn't indeed answer it. The ways suggested (paying bills on time, opening account in a credit union, etc) don't affect or appear on your credit report. But it does mention in the end "get a credit card anyway".

That's the easiest way. You see, you can get a credit card without a credit report - if it is secured. You don't really need the credit, you just need the information to magically appear and bring your existence into the messed up financial world of the US banking/credit system. So you give credit to yourself. You go to a bank, put amount of money in a CD, use that as a collateral and get a credit card secured by that CD with the credit limit at the amount of your collateral. Basically - you've given yourself a loan. Pay your credit card on time - and you won't pay any interest (but you'll get some on that CD). In a year or so, the bank will release the collateral, make the card a "regular" credit card, and that's how you'll know that you have a basic positive information in your credit return (do check though, you can get a report once a year for free from each of the agencies, that's a free report every 4 months).

Adding yourself to your parents credit cards may or may not work. Some issuers report that, some don't. I know that Amex does. I know that Chase doesn't. Its not uniform. If in your case it does get reported, it will definitely be quicker than doing the secured card thing. Several months, instead of a year.

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+1 for a great answer. I will add that when I encountered this problem (over 40 years ago) as a fresh immigrant, I solved it by opening a savings account with my employer's credit union (no questions about identity there!), depositing some money there and taking out a loan (that I did not need) with the deposit as collateral for three months. After that, the local bank was willing to open a checking account for me. –  Dilip Sarwate Nov 14 '12 at 12:59
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@Dilip, this is still a possibility, but in this case you will pay interest, whereas with a secured credit card - you will not. But on the other side, a secured loan will build a credit slightly faster than a secured credit card. –  littleadv Nov 14 '12 at 18:14
    
And as for why the assumption that no credit = bad credit, I could say something about the entire U.S. being built on debt and thus biased against anyone who bucks the system, but the reality is very simple; pessimism is the safe bet. If you have no credit, you are a complete unknown; your lack of past information makes your future actions unpredictable and thus very risky. It's safer for me to pass on you, knowing there are plenty of other people who want my money and will pay me interest, than to take the chance that you turn out to be a good credit risk. –  KeithS Nov 14 '12 at 20:57
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@keithS this is a result of only considering information about prior indebtness. But what if I have wealth of millions, and need a credit card to make hotel reservations? In the current system - no-one cares about the wealth or earnings, only prior debt history is relevant. Ridiculous, but that's how it is. –  littleadv Nov 14 '12 at 21:14
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@KeithS This was my thought as well. I expect they would if there were a physical location to walk into. littleadv did a good job bringing up that it's being used for identification, that & being online-only must be the reason for the 600 requirement. –  Christopher Galpin Nov 16 '12 at 17:40

I worked at a bank for almost 6 years and used their secured credit card. To give you an example of what that did as far as credit was concerned: on Transunion my score increased 200+ points, while on Experian and Equifax, it increased by less than 150. Most customers who used the card also saw an increase, provided that they paid on time and didn't max out the card.

Some strategies I used and I recommended to my customers:

  • Watch the credit utilization ratio. This is the amount of credit you've used to the amount of credit available. If you set up a secured card with a $1000 credit line, watch how much of that limit you use. Typically, the lower your credit utilization is, the better (see: http://credit.about.com/od/creditreportscoring/a/creditutilization.htm).
  • ALWAYS. PAY. ON. TIME. With everything; I'm surprised by what I've seen on my credit report outside of credit.
  • Avoid reckless credit inquiries. This is hard because so many companies want to do a credit check, and the list seems to be increasing. I've also dealt with employers who wanted to do it.
  • Monitor your credit and when it reaches 600, open your account. It may not take a year.
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The BEST thing you can do to build a credit score is get a secured credit card. this is where you deposit money and this money becomes your credit limit, when you close the card you are given your deposit back. I personally recommend the Capital One Secured Master Card, it has the lowest deposit ($49), good customer service, and they are the only company i found that gives you unsecured credit once you pay your deposit (my initial credit line was $200, even with only a $49 deposit). I then used my card for small purchases, the golden rule I've seen on most sites is never use more than 30% of your available credit so that you're debt to credit ration is really low. After about six to seven months i was able to open 3 unsecured lines of credit: Capital One, Bank of America, and a store card for a department store I frequent, all of which i was denied before. I actually got the first two offers pre-approved in the mail and with a REALLY good interest rate (all between 9.99 - 16.99) so i guess they had been monitoring my credit and saw the improvement. I canceled my card after 11 months because there is a $29 annual fee, you don't get the reward points i get with all my other cards. It took about a week for me to get my $49.00 deposit back. I would suggest holding the secured card for around a year, making sure to open at least one or two unsecured cards once your credit score has been built. I use creditsesame.com to monitor my score for free, i went from around 664 (starting) to well over 700. At only 20 thats pretty impressive for the short amount of time and effort that went into it, and it helped me get a really good deal on my car loan.

A little about piggybacking on your families credit scores. I moved in with my fiance at the time at 18 with no credit,loans, or debt, I wanted to start building credit so I could buy a car and have my car loan could be in my name instead of his but was constantly denied. He added me as an authorized user on his longest line of credit (A Navy Federal Unsecured Credit Card with a $3,000 limit) which did help my score a little. The key to being an authorized user is that you need to be an authorized user on an account where you also give your social security number,name, address and then they will report on your credit report, I was also given my own card with my name on it. some credit card companies will have you as an authorized buyer but you don't give your social security number, are not responsible for the debt and it isn't reported on your credit score.

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The BEST thing you can do - I think you need to back that up with some research or documentation. It is not correct to the best of my knowledge. –  user4127 Nov 21 '12 at 16:19
    
Credit Unions are also terrific in the US, but the CUs available to a person is different, so shopping around. Credit Unions are for and by their members, whereas a bank is for the shareholders. Always shop around. –  MrChrister Dec 1 '12 at 22:32

There is no fast way to increase your credit score in a short amount of time after having no credit. One of the biggest factors that determines your credit score is length of the oldest credit account. You'll have to wait several years until this determinant isn't used against you.

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Its not the biggest factor, its only one of them. What affects your score most is utilization, amount of revolving credit, types of credit and quality of the credit. It is actually quite easy for no credit to raise significantly in less than a year. You need a much better understanding of the FICO scoring system. –  GµårÐïåñ Oct 4 at 8:09

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