Building credit when you’re afraid of credit cards

If credit cards make you anxious the way public speaking or heights set other hearts aflutter, don’t worry. You can build good credit with baby steps that pose little risk of plunging you into debt.

Many are credit shy because they’ve made mistakes in the past, they’ve seen friends or family get burned or they were raised in credit-averse homes, says Brad Klontz, a financial psychologist and author of “Mind Over Money: Overcoming the Money Disorders That Threaten Our Financial Health.”

However, responding to fear of debt by avoiding credit entirely can make you a “credit invisible,” a consumer with no credit file or score. That can cause problems when you need to rent an apartment, get a mortgage or buy a car, says Martin Lynch, director of education for Cambridge Credit Counseling, a nonprofit credit counseling agency in Massachusetts.

A person with no credit or a thin file either will not be able to get credit or could end up paying hundreds or thousands of dollars more than they would with good credit, Lynch says. For example, a landlord might refuse to rent to you without a co-signer or charge a larger security deposit, while a lender might turn down your application or refuse to give you the best available interest rate.

Need to build your credit so that doesn’t happen to you? Here are six ways the credit shy can build credit without applying for a slew of cards or buying consumer items on credit:

1. Face your credit fears

Before you dip your toe into the credit waters, think about why you’re leery of loans, Klontz says.

“Look at your beliefs around credit, then examine the accuracy of those beliefs,” Klontz says.

Some people have strong emotional reactions that may be based on an unbalanced view of credit as all bad, he says. While credit can be abused, the way credit will affect your life depends on variables like the type of credit, the interest rate and how responsibly you repay a loan.

“Certain aspects of credit can be very good for you financially,” he says.

2. Become an authorized card user

Consider asking your parent, spouse or another trusted family member with good credit to add you to their oldest major credit card account. An older account gives your score an added boost by increasing the length of your credit history, which accounts for 15 percent of your FICO score. When your relative adds you to an account, your credit doesn’t get checked, and you don’t have to get approved. The credit card issuer will send the main cardholder a card with your name on it, but you don’t need to carry or use it to build credit. If you have no credit, being added as an authorized user on an account that reports to the three major credit bureaus can get you a credit history and a FICO score within six months. That’s a good start, even though being an authorized user on one account won’t give you a fat credit file.

“Every little bit helps,” Lynch says.

3. Fill up on good credit with a gas card

Now it’s time to get your first card. For the credit timid, a gas-only credit card offers a good option, Lynch says. Gas cards have several big advantages for credit newbies. First, gas-only cards tend to be easier to get than general-purpose credit cards, he says. Second, you can use the cards only at specific gas stations, which means you won’t have to worry about pulling out your card for a splurge you can’t afford, unless you have a weakness for long road trips. For example, the ExxonMobil Smart Card can be used at 11,000 Exxon- and Mobil-branded gas stations across the country.

You also get rewards on gas purchases, usually 3 to 5 cents per gallon, which puts a little extra money in your wallet.

“If you only use the card for gas and pay the balance in full each month, it’s a relatively painless way into the world of credit,” Lynch says.

4. Get a basic card for the long haul

Once you’ve gotten comfortable with using a gas card, consider applying for one trusty general-purpose credit card you can keep in your wallet for years. It’s good to carry a card so you can easily reserve hotels and rental cars and have the option to pull out plastic in an emergency. Look for a card with no annual fee and a low interest rate, says Pam Horack, a certified financial planner known as “Your Financial Mom.” By choosing a low-interest card, you can minimize the amount you pay in finance charges if you ever need to use your card in an emergency and carry a balance for a few months.

5. Exercise your card-use skills

Practice using your card responsibly to gain credit skills and avoid having the account closed for inactivity. Consider using the card as your method of payment for a modest recurring charge, such as your cellphone bill, and set up an automatic monthly payment so the bill gets paid on time. Your payment history accounts for the largest piece of your FICO score at 35 percent. Or use your card for bigger occasional purchases like a new vacuum cleaner or a set of tires, Horack says. Before going that route, though, set up and fund an “operations and maintenance” savings account so you will have the money to pay the bill in full, she recommends.

By using your card to make a big purchase, you get to take advantage of any benefits your card may offer, like extended warranty and purchase protection. You also get credit card consumer protections, such as the ability to dispute a charge for unsatisfactory merchandise. And you build credit.

“The credit card company sees that you’re not just letting your card sit there with a zero balance,” Horack says. “You’re using your credit and using it wisely,” Horack says.

6. Secure a small loan

Having a mix of credit shows lenders you can pay back different types of credit responsibly. Your credit mix counts for 10 percent of your FICO score. So, in addition to revolving credit in the form of a credit card, it’s smart to get an installment loan, which has a set monthly payment that you pay back over a defined period of time. One relatively low-risk way to do this is through a credit-builder loan, offered at some credit unions and banks, Lynch says. Lenders typically offer relatively small loans.

For example, FreedomFirst Credit Union, in Virginia, offers credit-builder loans of $500 to $1,000. Some lenders put the loan funds into an account and don’t give you access until the loan is paid off, while others offer you access to up to 70 or 80 percent of the loan funds, Lynch says. In any case, it’s best not to touch the funds if you can avoid it, he says. When you’re done, you’ll have a chunk of money saved.

As you work on building your credit, check your credit history regularly. You can look at your credit for free at each bureau once a year at Many experts recommend staggering your credit checks, checking one bureau every four months.

If you follow these steps, you’ll be prepared when you need to borrow money for a big purchase like a car or home. You might even find that the skills you’ve learned along the way have transformed you from timid to credit confident.

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