Can’t get a secured card or a personal loan – how can I build credit?

Pay off any delinquent accounts, and consider a passbook loan to build credit

Keeping Score with Steve Bucci

Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.

Ask Steve a question, or see if your question has already been answered in the Keeping Score answer archive.

Can't get a secured card or a personal loan – how can I build my credit? 

If you have negative items in your credit report, you likely won't be able to change that right away. However, you can add some positive data without a secured card or an unsecured personal loan. Here are some ways to help build your credit:

Expert Q&A

Check out all the answers from our credit card experts.

Dear Keeping Score, 

I have a credit repair firm working on my credit for me so I can reach my goal of obtaining a mortgage. I only have one negative item on my report, but the problem is I don't have any credit. My report says “N/A.” I've had lots of trouble getting a secured card. I don't know of anyone who will put my name on their card and am having just as much trouble getting a personal loan as I was trying to get a secured credit card. What else can I do to build credit? -Jade

Dear Jade,

Building credit can seem like a tricky proposition, unless you understand the rules of the game. Once you do that, then all you need to do is follow some simple steps and you will get your desired result. 

Looking at your credit report and asking someone to change what’s on it is like looking at the scoreboard at a baseball game in the fifth inning and asking that the score be changed. The game doesn’t work that way, nor do the rules of the credit game.

What’s on the scoreboard can’t be changed, but the next four innings can. You sound like you’re only in the second inning of a very long game, so there are lots of things you can do to build your credit. Here are some practical suggestions:

Pay off any overdue balances: If you have only one negative item on your credit report, you’re likely throwing good money away by hiring a credit repair firm. 

A credit repair firm can’t get accurate negative items removed from your credit report. And if you have negative items that are inaccurate, you can get those removed yourself by disputing them with the creditor and the credit reporting agencies. 

If you have an old unpaid debt, you should try to pay it off if you can afford to do so. Paying an overdue balance in full can make you look better to prospective lenders than you would if you still had an unpaid debt, but it won't boost your credit score for a while. Negative items, including missed payments and collection accounts, remain on your credit report for up to seven years.

If you’re not able to pay it off in full, you may be able to settle the debt with the creditor or collection agency for less than the unpaid balance. However, settling a debt for less than what was originally owed is another negative item that will affect your credit score. 

Tip

Tip: Avoid opening a new credit card account right before applying for a mortgage. It will lower your average age of accounts and add a hard inquiry to your credit report, potentially decreasing your credit score. 

Get on first base before you try to steal home: If the negative item on your credit report is accurate, you’ll need to add positive entries to offset the bad one. 

If you can’t qualify for a secured card, don’t despair. A solution is as close as your local community bank or credit union. Stop in (yes, in person) and ask about a passbook loan. This works like a secured card, in that you will need to open an account with a deposit equal to the amount of your loan. Passbook loans are often sought by people with thin or tarnished credit who don’t qualify for traditional credit cards. 

Each month you’ll make a payment on the loan that is 100 percent secured by your deposit in the bank. Just be sure that your bank reports your positive payment information to the credit bureaus. This will add new positive data to your credit report, while the passage of time will diminish the damage from your one-time negative entry. The result should raise your score.

See related: How soon will my credit score recover from a collection item? 

Go shopping: After several months, you should qualify for a low-credit-limit secured card or a retail card. But pull your credit reports first to make sure the loan payments have been reported accurately. Walmart and other retailers offer cards that can only be used at their stores. These cards can be easier to get than a general-purpose Visa or Mastercard, but they build credit just as well. Combined with the passbook loan, you’ll also score extra points for using more than one type of credit successfully.

Look into rent reporting services: If you are a renter, you can also look into rent reporting services such as RentTrack and PayYourRent. These organizations will report the rent you pay to the credit bureaus. Not every bureau uses them and not every scoring model will use this information when calculating your score, but some may. Paying all of your bills – not just credit card or loan payments – on time, every time is the best way to build your credit report and score.

One last thought: When you say you have no credit, I’m guessing you mean you have no active accounts, but you still have residual negatives from closed accounts on your file. If this is why you have hired a credit repair firm, be aware that everything they can do for you, you can do yourself for free. If you need some extra guidance you can always check out my book, “Credit Repair Kit For Dummies,” at your local library.

All of this will take time and I know it is hard to wait. But there are really no quick fixes when it comes to credit scoring, so patience here is really a virtue. If you are being told otherwise, I fear you will be disappointed. 

Remember to keep track of your score!


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Updated: 09-23-2018