Many people believe that by not having any credit or only very small amounts of credit on record it will show them to be the very best people for banks and finance companies to lend to. Sadly I have to tell you that, that is not the case at all, at least not from a lender’s point of view.
By the very nature of their business banks and other financial lenders have to be cautious.
They only really want to lend to people that are of good financial standing as those are the types of clients who pay back every penny of what they owe on time, each and every time. And the only way for a lender to know if someone falls into that category is by checking what that customer has done in the past when they have borrowed money.
Of course if you have never had a loan, mortgage or even a credit card you have no financial track record for them to base their judgement on.
The same applies if you have only ever had very small loans or low balances that you have paid off in short order on a credit card. While the old adage might say never a borrower or lender be, that is always something which spooks any lender and being the cautious people they are they automatically have to assume the worst.
Which means they will consider you to be at best a high risk applicant and at worst a bad risk one.
So what can you do to improve your credit standing in what would seem to be a “Catch 22″ situation?
Well strange as it may seem, you are actually a better credit risk in a bank’s eyes if you have a small amount of well paid credit outstanding. I fully understand that may well sound counter intuitive but believe me it is true none the less.
To get to that stage you might well need to approach your own bank and ask them for a credit card with a low credit limit on it.
If you have your salary paid in to the bank each month, and have been a customer of good standing for a number of years, they will almost certainly grant you one. Of course credit cards are a very expensive way of borrowing money so you need to exercise some care with it.
If you use it you will want to establish before hand any charges you’re going to incur.
One way which credit cards can be helpful is if you can use them to your advantage. To give you an example you could buy something relatively inexpensive on your new card and then approach another card issuer who is offering interest free balance transfers for the first six to nine months.
By transferring your balance from your first card to the interest free one and paying it off slowly over the interest free period you will be building your credit reputation up in the eyes of other lenders and not paying for the privilege.
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