As a borrower, having a good credit score and credit history is essential to secure loans, credit card approvals, or mortgage loans. But, what about people who have just started building their credit history? Can a short credit history ruin their chances of getting approved for loans?
The answer is not as simple as a yes or no. Having a short credit history can make lenders skeptical about the borrower’s creditworthiness. A short credit history simply means that the borrower hasn’t used credit accounts for a long time. Therefore, lenders don’t have enough information to assess their creditworthiness. Without a credit history, they can’t determine if the borrower has made timely payments, how much debt they have, and if they have a tendency to default on their loans.
In most cases, having a short credit history can make it challenging to get approved for loans. Lenders will be hesitant to lend to someone who doesn’t have a proven track record of managing credit responsibly. They will see the borrower as a higher risk, and they might require additional documentation or collateral to protect themselves.
However, it’s not all bad news. Having a short credit history doesn’t mean you will always be denied loans. There are still ways to get approved for loans with a short credit history. Here are some tips that you can follow:
1. Start with a secured credit card: A secured credit card is a type of credit card that requires a deposit which becomes your credit limit. Using a secured credit card can help build your credit history and demonstrate your ability to make on-time payments.
2. Add a co-signer: Adding a co-signer with a good credit history to your loan application can increase your chances of getting approved for a loan. A co-signer is someone who takes responsibility for your loan if you default on it.
3. Take a short-term loan: A short-term loan like a payday loan or installment loan can help build your credit history. Make sure you make timely payments to avoid defaulting on the loan and negatively affecting your credit score.
4. Refrain from applying for too many loans: Applying for too many loans in a short period can hurt your credit score. Be selective and only apply for loans that you’re confident you can repay.
In conclusion, having a short credit history can make it challenging to get approved for loans. But it doesn’t mean you will always be denied loans. There are things you can do to build your credit history and increase your chances of approval. Remember to make timely payments, be responsible with your debt, and avoid taking on debt that you can’t afford to repay. By following these tips, you can start building a strong credit history and increase your chances of getting approved for loans in the future.