Who Needs to Build a Credit Report From Scratch?

By Dawn Handschuh, Personal Finance Writer Archive

Conscientious consumers are sometimes startled to learn they've been turned down for a loan or credit card, not because they're unemployed or lack savings, but because they lack a credit history.

Teens
College students are showered with credit card offers because lenders know that their earning potential will soar after graduation. But those who bypass college may find it difficult to get such offers or build a credit history.

Retirees, widows, divorcees
Retirees may have sterling credit, but if the mortgage was paid off years ago or a deceased spouse managed household finances, the widow(er) may find that an inactive or nonexistent credit history can keep them from buying a new car, for example.

Immigrants
Regardless of their bill-paying history in their native countries, immigrants must start to establish credit history from scratch when they arrive in the United States.

"Conscientious objectors"
Some people prefer paying only in cash because of personal beliefs or an anti-consumerism philosophy. But they risk a cash crunch if unanticipated expenses arise.

The wealthy
Highly affluent people may not often need good credit because they usually pay cash. In an emergency, though, their money could be tied up in illiquid investments and not readily available.

There are many options for young people and others who recognize the importance of establishing a solid credit history based on responsible borrowing, on-time bill payments and disciplined spending habits. Options include:

• Secured credit cards
• Student credit cards
• Debit cards
• Prepaid cards
• Joint credit cards
• Authorized user cards
• Co-signer loans

Forward-thinking parents can give their kids a leg up on money management by starting their financial education early, while they're still living at home. This way, they can monitor their kids' credit usage and spot signs of trouble early.

Start kids off with a savings account designed for children as soon as they start talking about financial goals. When they're older, they can graduate to secured credit cards, which limit spending while still allowing them to build a credit history. By the time they're teens, they'll be better positioned to finance that first car or apply for college loans at rates that don't break the bank.