What if you have no credit?

Maybe you are debt-free and have always used cash to make every purchase. You would think that being debt free is a positive trait in the eyes of the lender, right?

Think again. Actually, having little or no credit history is almost as bad as having bad credit.

Here are a few tips to help start building a positive credit history (and what NOT to do):

Get a Secured Credit Card

A secured credit card is an easy way to start building credit. Your past credit history is less important when you apply for a secured card because you are opening a savings account to secure the credit line. If you deposit $500 into a savings account, you will be allowed to charge up to $500 on the secured credit card.

Borrow good credit

If you know a friend or family member with solid credit, you can borrow their good credit profile. This person must have credit cards and trust you to be a "co-signer" or an "authorized user". Have this person call his or her credit card company and request that you be placed on his/her account as an authorized user. A copy of the card will then be sent to you. In order to benefit from the "borrowed credit profile," it is not necessary to actually use the credit card. Soon, your credit report should show an open account with all the positive credit history created by that account. Remember that this person did you a favor and do not repay the favor by spending more than you can afford to re-pay.

Maintain Active Accounts

It is not enough to simply open an account and let it sit. In order to build a positive credit history, you need to show reasonable activity and a responsible payment pattern. Lenders need to see that you always pay on time when you use your account. And, you need at least one year (sometimes more) of good credit history to be taken seriously by lenders.

The Student Loan Question

So, do student loans count on credit scores? Yes and no. The FICO score, the credit score many lenders use, divides loans into two categories: installment loans and revolving loans. Student loans, mortgages and car loans -- where you pay a fixed amount every month -- are installment loans. Credit cards -- where you control your monthly payment -- are revolving loans. Owing a lot of money in student loans -- or any installment loans -- is not going to hurt you as much as maxing out your credit cards. However, you can still hurt your credit score if you miss payments or default (make no payments) on your student loans. On the other hand, you can improve your score by making payments on time.

What NOT to do:

Do NOT apply for more than one credit card at one time

Multiple inquiries are bad for your credit and can cause you to be turned down. Too many inquiries make you appear financially desperate. Lenders will also be alarmed by the numerous inquiries. They will question both why you need so much credit and whether you have already been approved for additional credit. Either way, your debt–to–income ratio will be perceived as high and you will look like a bad credit risk. Inquiries stay on your credit report for 2 years.

Do NOT miss payments or pay late

Not only is this not conducive to the image of the good customer that you want to show to your creditors, late and delinquent payments are going to damage your credit rating. Not paying or paying late makes you look like you can not handle your credit. Look carefully at the terms of your credit, pay attention to grace periods or the lack thereof.

Do NOT pay the only the minimum

When you get your billing statement, every lender indicates the minimum payment due. That figure represents a small percentage of your actual balance. While paying the minimum on time may help your credit rating, it can hurt you by allowing the remaining debt to rack up interest charges. Even if you do not make new purchases, that interest can mount up quickly. Do not be misled by the minimum payment requirement. Better yet, disregard it altogether. Properly budget your finances and pay off your debts in a measured, timely fashion.