How to Establish Credit History Without Losing Your Shirt
Among recently-passed credit card regulations is a command that issuers stop giving credit cards to adults under age 21 unless these young people can show proof of income or have a co-signer who will vouch for them financially (usually a parent). The intent is to stop credit card companies from heavily marketing credit cards to college students — young people away from home for the first time who have been known to run up big debts that haunt them later.
Regardless of whether you agree or disagree with this regulation, it will no doubt mean more young people entering their early to mid-20s with no credit history. Because you need a credit history if you ever plan on financing a car or a home at a reasonable interest rate, this is an important issue. So, what should they — and anyone else with no credit history — do?
Here’s the simple plan I advocate: Get a secured credit card.
What is a secured credit card?
A secured credit card works like a standard credit card, but with a slight catch — you have to deposit money into an account as collateral before you use the card. The amount you deposit becomes equal to the size of your credit line. For example, if you deposit $500 into your account, you can charge up to $500 with the card. You then pay your balance each month, exactly like you would with a regular credit card.
A secured credit card is not the same as a debit card. You are responsible for paying your monthly charges with money you have on hand; your purchases do not get deducted from your deposited balance as they would with a debit card. The deposited money serves only as protection for the bank in case you don’t pay.
When you pay your card balance each month, the bank reports your payments to the credit bureaus, who begin to keep track of your credit usage. You’ve established a credit history! Each month that you make on-time payments, your credit history lengthens and improves, moving you closer to the high credit score that will get you good rates on future financed purchases like a car or house. (If you fail to pay or pay late, you’re still establishing a credit history — but a bad one.)
Beware of high fees
Secured credit cards do charge annual fees, but if you go with a major bank, they should be minimal. Among the secured credit cards I recommend are:
- Citi Secured MasterCard ($29 annual fee)
- US Bank Secured Visa ($35 annual fee)
Both of these banks will give you the opportunity to upgrade from the secured card to an unsecured card with no annual fee in the future. (US Bank offers this after 12 months, Citi after 18 months.)
On the flip side, there are many secured credit cards and unsecured credit cards out there that charge hundreds of dollars in fees while promising to help build credit. Stay away from them! The companies offering these cards are either preying on the ignorance of newbies or they are selling a product to people who’ve ruined their credit and are desperate to get it re-established. These cards are not for people with no prior credit history.
Note: “Secured credit” means you have put up something of value as collateral in case you fail to pay your obligation. In the case of the secured credit card, the collateral is the money deposited up front, which the bank takes if you don’t pay. In the case of a car or house, it means the car gets repossessed or the house goes into foreclosure if you don’t pay. “Unsecured credit”, on the other hand, has no collateral — you are promising to pay the loan, but the bank or other creditor can not take away your money or possessions if you fail to pay. However, they can still sue you and your credit history would be ruined.
The easiest way to establish credit
Establishing credit is important to your financial future, and the easiest way to do so is via a credit card. You may not like credit cards, but consider this: Credit cards are the only financial tools that allow you to establish credit without forcing you to pay monthly interest. Understand the details of your credit card application, and as long as you pay your balance in full each month, you can establish credit for free (or almost free in the case of secured cards). If you choose to use credit responsibly, establishing a credit history can actually be very easy.
Photo by Fosforix.
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There are 48 comments to "How to Establish Credit History Without Losing Your Shirt".
Thanks for this post Adam. I think it is a good idea to not issue credit cards to people under the age of 21 as many younger people do not have the self-discipline or control it takes to manage one and not go into debt with it. I think the secured credit card is a great way to build you one’s credibility as well as helping people to become more educated in terms of how they spend and save money.
As a college student who came out of college (after 4 years) with a ~720 FICO score and three credit cards (all with no annual fees and used for different purposes for maximal rewards … all paid in full every month), I’m really glad I got in before this law went into effect.
I understand there are some folks who are not responsible with their monies, but I really hate that it always seems to be the responsible ones who get nailed for it along with the irresponsible.
I won’t delve too deep here, but I think it’s a reflection on our society that the age of majority for doing certain things like getting a credit card is creeping upward. We’re not becoming responsible at the age we used to, and I think it’s sad.
Thanks for the tip.
What’s really funny is that, before graduating from college, my girlfriend was pre-approved for all kinds of credit cards but never took one. After graduating last year, she decided she’d start using one and NO ONE would give her an unsecured card.
Interesting, no? The credit industry has been praying on dumb college kids for ages, so it’s nice to see the new laws going into effect. My first day of school there were credit card companies giving away free pizzas in exchange for credit applications. There were kids just falling over each other to get a “free” pizza.
I seem to remember JD mentioning something about his $10,000 frisbee from a similar offer.
I do not necessarily agree with an age requirement of 21 to receive a credit card. Most monetary habits are taught (directly or indirectly) from what a child experiences at home.
I work with many adults who were not taught how to handle their personal finances and that is why as a money coach I am working with them. These some adults are not comfortable teaching money management to their children.
Thank you for explaining about secured credit cards. Many people do not know that they are available to help establish a credit history. This was one of my tips that I included on my latest e-newsletter which addressed creating credit history for young adults.
I do not necessarily agree with an age requirement of 21 to receive a credit card. Most monetary habits are taught (directly or indirectly) from what a child experiences at home.
I work with many adults who were not taught how to handle their personal finances and that is why as a money coach I am working with them. These some adults are not comfortable teaching money management to their children.
Thank you for explaining about secured credit cards. Many people do not know that they are available to help establish a credit history. This was one of my tips that I included on my latest e-newsletter which addressed creating credit history for young adults.
I do not necessarily agree with an age requirement of 21 to receive a credit card. Most monetary habits are taught (directly or indirectly) from what a child experiences at home.
I work with many adults who were not taught how to handle their personal finances and that is why as a money coach I am working with them. These some adults are not comfortable teaching money management to their children.
Thank you for explaining about secured credit cards. Many people do not know that they are available to help establish a credit history. This was one of my tips that I included on my latest e-newsletter which addressed creating credit history for young adults.
I do not necessarily agree with an age requirement of 21 to receive a credit card. Most monetary habits are taught (directly or indirectly) from what a child experiences at home.
I work with many adults who were not taught how to handle their personal finances and that is why as a money coach I am working with them. These some adults are not comfortable teaching money management to their children.
Thank you for explaining about secured credit cards. Many people do not know that they are available to help establish a credit history. This was one of my tips that I included on my latest e-newsletter which addressed creating credit history for young adults.
One has to be sure that the secured card will “upgrade” to an unsecured card. Otherwise, the user will be forced to use the card forever (with the annual fee)…
If he or she cancels the card, the positive bump to the credit history for paying in full will be lost (as credit cards history of payments are removed from a credit history when they are canceled).
The “upgraded” unsecured card will then have no deposit requirement and no annual fee.
Good article. My fiance and I just went through this. I can get a card no problem. I got a credit card in college and am in a state where they are almost paid off. I have a long credit history-my parents took out small loans in my name in high school, but paid the loan off with cash they already had saved (my first car/computer, etc).
My fiance on the other hand, has no credit history, which is worse then having bad credit, I’ve decided. We’ve tried applying for in-store credit cards to no avail. We finally had to go to a semi-secured card–$100 deposit with a $500 limit. We don’t put more then $100 a month on it and pay it off when the bill comes. In a year, Bank of America will review his application and see if he’s qualified to move onto a big boy credit card. All of this so that in three-four years, we can purchase a house.
Slightly off-topic, but I tried your pot roast recipe that you posted recently, and it’s great!
I cooked it in a crock pot on low for 11 hrs (since I don’t work at home & I didn’t want to leave the oven on unattended all day)–worked great.
Another thing to remember…both people who are married should be sure to establish independent credit histories.
Because you never know what could happen. Many women have been blindsided after divorce by finding that they have no credit history at all.
JD,
I think your comment about unsecured credit cards was a bit misleading. You say that a bank or whoever can’t take your money or assets if you don’t pay, but that they can still sue you. For those not in the know, if you refuse to pay a judgement, the plaintiff *can* go after your bank account…
This is such good advice! Having graduated with the class of 2008, I can name at least two friends who have not been able to get a credit card or a loan because of a lack of credit history. While the law may protect college students against predatory credit card companies, there is always a flip side to every story!
What I don’t understand is having multiple ages of majority. In the U.S., a person is considered old enough to fight and die in a war at 18, but they can’t drink until they are 21. They can get married at 18, but (now) they can’t get a credit card until 21 without jumping through more hoops. Oh, and no renting cars until you are 25 unless you want to pay an additional penalty. On one hand, I think it reflects poorly on our priorities as a society (which of these REALLY requires better judgment?). It also just doesn’t make much sense. Pick an age that a young person is to be considered an adult and be consistent across the board.
Once again I’m reminded of my 31-year-old friend with no credit history. He recently decided he wanted a brand new car. His current one, which he bought used several years ago, is giving him problems.
His solution to this problem? Pay cash. He didn’t want to dig into his cash on hand to pay for a car, so he sold $30,000 worth of stock. He’s set his budget for the car at $30,000 plus the trade-in value of his old car.
He’s never needed to use a credit score in his life, and he’s financially better off than pretty much anyone I know. Yes, this anecdote is to support my “credit scores are less important than people tell you they are” belief, but I do have real-life examples.
@ Tyler, what if he wants to buy a house? does he have that much cash on hand? good on him if he does by the way. wish I did. 😉
The problem with college students and credit cards mainly pertains to the ones who live on campus and their parents pay for all or most of college tuition. What person in his right mind would actually think that free money is on a credit card? No one. Those college students know that they have to pay that money back, they are just hoping the parents will step in.
I’ve had credit since I was 18, I live on my own, and I pay for my own school. I’m 22 and my credit score is ~740. I’m in the process of buying a house, and once I do, I won’t care about my credit.
The difference between me and most other college students is that I know that I don’t have anyone to fall back on. Most other people I know have mommy and daddy bail them out when the “going gets tough”. Either that or mommy and daddy don’t even let them get to that point.
I don’t think I agree with this advice. secured credit cards are just wrong. I give you money so that I can get some of it back from you? And you are going to charge me for this privilege? If you go the secured route don’t pay an annual fee. If you have proof of income you should be able to get some sort of credit card. I was offered my first one before I ever had a job. Whatever you do, don’t pay an annual fee just to build up a number.
I don’t understand why we need the age qualifier here. I believe that there should be regulations against giving credit cards to ANYONE (not just those under the age of 21) unless they can show proof of income or have a co-signer who will vouch for them financially.
Are there other options for building credit? I can see how a secured credit card could be useful for someone starting out, but it wasn’t clear what happens to your $500 if you DO pay your balance off and prove responsible. Does the credit card company keep your money, or do you get it back, or do they give you extended credit for that amount (and wouldn’t that mean they’re just keeping it)? Unfortunately, it still seems like a way for us to bow down to credit card companies. But if there are no wiser options for building credit, I would consider it.
Even though something about secured credit cards rubs me the wrong way, I do like the idea of a “training” credit card and I don’t think it’s a bad idea to require them for young adults or people who haven’t built a good credit history. We have to prove we’re capable and responsible before we can drive so that we are less likely to cause damage when we do it. Why not the same with credit?
I’m mulling these things over because I’m 30 years old with very little credit history. My step-parent’s ex was irresponsible with credit, and it haunted our family for years. Because of that, I was taught that credit cards are evil and should never be used. I like the idea of living within your means and paying cash whenever possible (I did this for my entire undergraduate education!). But now that I’m older, I wish I had also learned to use credit as a helpful tool. Trying to get a car loan a few years ago was difficult, frustrating and embarrassing. It’ll be a while before I look at buying a house, but I want it to be a positive experience, and I need to find careful ways to build credit before then.
I want to start my own credit card company.
@ E
I don’t know if he does right now, but I know that’s one of his goals. Whether he does or not also depends on the real estate market and the stock market. If stock prices keep rising and real estate prices keep falling, he might soon.
The idea of putting a house or car up as collateral against a credit card sounds scary to me (although, if you’re in the position to need a secured card, it seems unlikely that you’d have a house or car in the first place).
And I agree that this places undue restrictions on those who would be responsible with their money.
Not that the law is up for debate since it’s already passed, but I’d rather see restrictions on the credit limit or some sort of “probationary period” (e.g. you have to pay your balance in full for the first three months or it’s cancelled).
You can buy a house without a credit score, but the bank has to do more work in reviewing your financial history (this is how it was done back in the day) and as a result the fees are generally higher.
Tyler (12)–“credit scores are less important than people tell you they are”–I’ve worked in credit much of my life and I completely agree!
People come up with all sorts of schemes to juice their credit scores, when for most the emphasis should be on staying out of debt.
Keep your debts low and your payments on time–those “strategies” are worth more than all the various schemes.
BTW, in many cases, the size of your down payment will do more to determine interest rate than your credit score.
Thanks for all the comments. To respond to a few of them:
@Dan #9: I think we’re saying the same thing. Credit card companies can still go after your money if you fail to pay an unsecured credit card; I was only defining the difference between “secured” and “unsecured” when it comes to loans. Secured means you put up collateral, unsecured means you make a promise to pay without putting up collateral beforehand.
@Brent #15: Whether you want to pay an annual fee to build credit is obviously a personal choice. Many people want to buy a home in the future and need to build a credit history to qualify. Secured credit cards are a way to do that if getting an unsecured card is difficult. It does seem wrong to have to get a credit card to help establish a credit history to help yourself down the road, it’s a screwy system for sure.
@Caridad123 #17: A reputable bank like those mentioned does not keep the money you deposit for a secured card. It is similar to the security deposit on an apartment. It is your money, but they keep it for protection in case you don’t pay, then you get it back.
@KM #20: You don’t have ever put up a car or house as collateral for a credit card, you put up a much smaller amount of money. I’m guessing that my explanation of unsecured vs. secured credit may have given you that impression — I was only discussing what collateral is in general, not the specific collateral for a secured credit card.
I’ve got a question about once you’ve got the credit card. Is it better to pay off your balance on a weekly schedule or wait and pay it once a month, when the total amount is set with the credit card company.
Wow, this unsecured credit card seems like a really bad deal! Other than for credit-building purposes, it doesn’t seem to make a lot of sense, either. If you have $500, why not just spend that money instead of giving it to a credit card company and paying a fee to use it? I have never paid for the privilege of using credit cards — not a penny in annual fees, interest, or penalties. I don’t know how strict the new regulations are, but I would think that a student with a part-time job could still get a regular credit card with no annual fee.
What I was always told as far as starting out establishing credit was “Start slow, pay as you go.”
Meaning don’t try to open 5 cards at once, pay off your balance each and every month, and slowly build up what you charge.
Don’t know if that still holds true today–but its what I was told several years back.
You need a credit history to buy a car instead of saving up and paying cash for something you can actually afford? Great advice! Let’s all get debt!
Jacque (#11) made the point that I always wonder about when the credit card age requirement issue comes up. So let me get this right: In this country, you can be old enough to go fight for this country and die, you are considered responsible enough to VOTE, and you are deemed old enough to be driving a car and trusted with YOUR LIFE as well as other people’s lives on the road, but you can’t be trusted with a credit card? What?? I seriously think it’s sad that we as a nation feel that all college-age kids are irresponsible and dumb and that we must protect them from the big bad world of banks and credit cards, instead of trying to teach kids RESPONSIBILITY. There are plenty of folks over the age of 21 who are just as irresponsible – If not moreso – with their credit cards. Mike (#16) makes an excellent point. ANYONE who doesn’t have a job and does not have a co-signer should not be issued a credit card, regardless of age. Let’s try to teach kids responsibility and accountability, instead of shifting the blame elsewhere.
Budgie (28), I completely agree with you and with Jacque on the under 21 point, but it does highlight a significant issue.
By the time a kid is 18 he has 13 years of formal education, but none of that education centers on personal money management, a pervasive “subject” common to only everyone in the human race. They’re even taught sex education in most districts, but not personal money management. Is it too controversial, even more so than sex ed??? Is it presumed to be taught in the home? Or maybe it’s considered innate?
Even in college, where people drop six figures for a gold plated education, the subject isn’t on the agenda. For many people the first “classroom” training in money management might come in the form of credit counseling, post-personal financial crisis.
Maybe this helps to explain how the country landed in the current credit predicament.
Just a thought to ponder…
@Kevin (29) I was just about to make the same point. I’m not sure that I agree with the age limitation. I was one of those “irresponsible” kids but because of that experience, I am now slowly making a complete 360 in regards to my finances.
It just seems to me that the legislation is only addressing the symptoms of a problem and not the root cause. As you’ve mentioned I think personal finance should be taught from a very early age and should be part of the curriculum in our education system.
I don’t think I understand this – how is this better than a normal credit card? Or is it only for those people who can’t get a normal credit card.
I’m 20 and got my card before this law passed. I pay my balance every month and generally just use it to build credit history and get the rewards program. But I definitely know some others my age who I wouldn’t trust with $5, much less a credit card. Then again, I don’t think they need to be “saved from themselves”. Also, Shane (#14) is completely right. It’s not that kids think credit cards are free money, it’s that they don’t think there’ll be any consequences if they don’t pay.
As a single parent that was *less* than good with money throughout my youth, teaching children about money is CRUCIAL, in my mind. I’m not going to blame parents, schools, etc, but quite simply, I clearly “didn’t get it”, and I am still paying for those mistakes a decade later! And quite frankly, I hate the position I got myself in, everytime I pay off my past debts… I could have used my time/money sooooo much better.
A program was suggested to me by a friend, that teaches kids to be responsible with money, and puts them in control of their money. It’s a fun, interactive booklet + personal website that makes tracking their money fun — more importantly, the tugs on the pantleg going through the grocery checkout and the tantrums have all but disappeared! I guess that’s a little self centered of me… but any parent knows those situations all to well. For the record, I too used to do this to my parents, I was apparently horrible to bring into a store… oops!
JD, I love your site! I’ve learned loads about personal money management, have had lots of thoughts to ponder, and, as a European, it’s very interesting to read how things are done on the other side of the ocean. I find it gives me an insight into how credit and saving works in the US and that in turn is valuable background when reading about the credit crisis and current economic happenings.
It also brings me to my question about Adams (very interesting!) article. Do you really *need* a credit score to finance a house? There is no way around that? You need to borrow money in order to borrow more money? Woudn’t the absence of a credit score indicate that in fact you have not borrowed money and are a much surer bet, since you manage your money well?
Around these parts if you have a registered credit score that fact itself is a black mark against you and warrants further investigation when applying for a mortgage.
This post is spot on correct. I had zero credit 4 years ago. I opened an account using $500 to get the secured credit card. I then proceeded to charge everything I bought, paying off the balance in full 2, sometimes 3 times a month. This allowed me to charge over $1000 each month on a card with a limit of half that. Eight months later I applied for a store credit card simply to test my credit and get a 10% discount on a purchase. In 13 months I managed to acquire 2 unsecured credit cards because I read the fine print and applied for the cards that offered better terms than I currently had. I owe nothing on my credit cards at this time but on all my credit cards combined I have a 14k credit line and a credit score of 762.
I don’t know what the average age is of the poster’s here, I’m 56 years young. I started my banking career in 1973, that would make me 20 when I started. I wanted to apply for a credit card after my 3 month probation period was over, and was told that I had to wait until I was 21. Also, back in the day, you needed to have 20% down to purchase a home.
My point is, even though one can marry, vote, and fight in wars/conflicts etc., if those rules had not been “relaxed” then I believe we wouldn’t be in the crisis that we are today. But hindsight is 20/20.
Applying for credit card, secured or unsecured, is risky in my opinion. If you got yourself into such deep trouble, then it is likely that old habits will be hard to break.
At one time, didn’t a secured credit card not count towards your credit score? For some reason I remember something like this.
And I’ve got to agree with most people here who say that giving someone money to hold, who will then lend it back to you and charge you a yearly fee for the privilege is a little whacked.
I know that department store credit cards charge crazy interest, but they can be the easies cards to get. At one time they were, anyway. Upon the advice of some uncles, my first credit cards were department store. High interest, and low limit; but I got them with proof of a checking account. Never carried a balance I couldn’t pay off in two months, another recommendation from the uncles. And in no time I was getting offers in the mail from the major credit card companies.
I know times have changed, but the department stores are hungry to get you a card in your hand, because if they can they know they’ll get your money.
When I was a brand-new college kid, I was already aware of my bad tendencies with money, so chose not to get a credit card. I knew it wasn’t free money, but I also knew I had a tendency to procrastinate and look the other way when paying bills was concerned.
I didn’t apply for a credit card until I was 24, but unfortunately my bad habits had stuck with me, and I racked up a hefty amount of debt on two credit cards. It wasn’t until I was around 26 that I decided to work on rebuilding my credit, and after quite a bit of reading and dealing with the credit card companies, I chose to get a secured credit card for $500 with my local credit union.
I highly recommend working with a credit union. There were no big yearly fees, and once I had kept the card for a year and proved my ability to keep up on payments, I requested that it be changed from a secured to an unsecured, and they quickly obliged and upped my credit to $1000. I finally learned my lesson, and have steadily been building up my credit ever since.
My reason for submitting this comment is to offer up the perspective that you don’t have to be a brand-new college kid with parents who’ll pick up the bill to still talk yourself into debt, and that if you do agree with building credit through credit cards, a secured card through a credit union is a good way to go.
Talk amongst yourselves.
I don’t think young people get in trouble with credit cards because they believe it’s “free money.” I think it’s mainly because they want instant gratification, and credit cards offer a way to get what they want now even though they don’t have the money now. It seems manageable because they can afford the minimum payment, but once they get in the habit of buying things they can’t afford, they get deeper and deeper in debt (not to mention wasting a ton of money on interest).
Guys, just want to say thanks for not at the end try to sell us some latest zero % credit card!
If you get your first CC, just have them keep the credit limit low ie $300/month. No matter how hard you try, You can’t blow yourslef up! 🙂
Thanks for this – I think too few people talk about secured credit cards, which makes it easier for credit card companies to trick people into signing up for “Bad credit” credit cards that are just ways to extort huge fees from those with little money in the first place.
One odd thing I’ve seen is a “prepaid” credit card. It seems to me to be like a debit card, except with lots and lots of fees. Do you know how a secured credit card vs a prepaid credit card stacks up as far as how it builds credit?
@Jack, #41. The so called prepaid credit cards do nothing for your credit history. It is exactly like a debit card, but with more fees. For folks who do not want or cannot get a regular checking account, they are an alternative way to pay for things (since nearly every merchant out there takes MC/Visa these days.)
“Both of these banks will give you the opportunity to upgrade from the secured card to an unsecured card with no annual fee in the future.”
The above is starting to become less true. I just went through this with a major bank, and although they said I could upgrade to an unsecured card after a year, what they MEANT was that I could APPLY for an unsecured card after a year, and man are they picky.
I was approved for an unsecured card (not without an annual fee, by the way) after a year (went a branch and got the decision in person), but then they turned around and denied me the unsecured card with the reason that I already had a sufficient number of accounts with them (meaning that because I had the secured card, they were going to deny me the unsecured card).
This was after I had a perfect payment history for a year. The only reason I kept the secured card open was because I wanted to get the new card before I closed the old account. So after closing the secured card I applied again, only to be told that I would have to wait a month before I could apply again.
So, in the meantime I went and got a credit card somewhere else and a couple store cards. Hopefully I won’t have to deal with the big bank at all after the run around they just gave me. So, I think this post is oversimplifying it a bit. It’s harder than ever for those that didn’t start with a card in college to get their foot in the credit door later. The tightening of credit markets, the trouble banks have had lately, and the pending regulation have made banks much more picky than they used to be just a few years ago.
We would love to be able to secure a secured credit card, but has anyone tried to get one recently? We recently moved to the US from Australia and have been unable to get any credit. Are we doomed to never be able to buy a house if we cannot get even a single credit card? I am American, he is Canadian, but we have not lived in North America for 6 years (I am 28, he is 33). I have good credit, but my husband hasn’t been able to obtain anything. (We had EXCELLENT credit in the US and both make a decent income here in the US).
We have tried to get secured credit cards from ING, HSBC and Chase, to no avil. HSBC really bugged us the most because they even advertise their secured card on their website but when you call them they say they no longer accept applications for them. Then update your website I say!
I will look into the suggestions provided in the article, so thank you for this. We’re running out of ideas! We were even turned down at Best Buy.
I don’t understand why we are having such difficulty, but I guess moving to the US during this recession is proving how bad it is here.
It’s not easy finding secured cards these days (which is surprising, considering they have cash as collateral…what’s less risky than that?), but probably the best way is to look at local credit unions. You can find a good listing in your area by searching at (and you’ll probably be surprised at how many there are).
Credit unions are more likely to have secured cards…the one I normally bank at didn’t, but the other big one in in my area did, it doesn’t even have an annual fee, and I still earn interest on my collateral. Also, even if a credit union doesn’t have secured cards, they almost always have share secured loans–basically, loans against money in your savings account, usually for about 2% + the interest rate on the account. It’s pretty useless, as a loan goes, but it does establish credit and 2.5% (since .5% is a reasonable savings-account rate right now) or so isn’t very much interest.