9 Ways to Build Credit from Scratch

By
Real Estate Agent with Nebraska Realty

It's much easier to start with good habits than to repair black marks later on

Establishing a good credit history has never been as important as it is today.  It's not just that you'll need good credit to get decent rates when you're ready to buy a home or car. Your credit history can determine whether you get a good job, a decent apartment, a deal on your cell phones and reasonable rates on insurance. One seemingly minor misstep - a late payment, maxing out your credit cards - can haunt you for years.

1. Check your credit report - you'll first want to see what, if anything, lenders are saying about you. That kind of information is contained in your credit report at each of the three major bureaus: Equifax, Experian and Trans Union. You're entitled to a free annual look at your reports from AnnualCreditReport.com

2. Establish checking and saving accounts - Lenders see bank accounts as signs of stability.

3. Understand the basics of credit scoring - The two most important factors in your scores are: whether you pay your bills on time; how much of your available credit you actually use. Always pay all bills on time - all it takes is a single missed payment to trash your credit scores & it can take seven years for the effects to completely disappear. Paying credit card bills in full each month is the best way to keep your finances in shape and build your credit at the same time.

4. Piggyback on someone else's good credit - the fastest way to establish a credit history can be to "borrow" another's record, either by being added to a credit card as a joint account holder or by getting someone to co-sign a loan for you. Having a co-signer can allow you to qualify for loans you might not otherwise get. The loan will show up on your credit report, and, if you pay it off responsibly, will help boost your credit scores.  REMEMBER - if you default, however, you can also ruin the other person's credit.

5. Apply for credit while you're a college student - there is no easier time to get a card than while you're a college student. Lenders are willing to take risks with you that they won't once you graduate, probably because then know that your parents' willingness to bail you out will end once you get your sheepskin.

6. Apply for a secured credit card - if you can't get a regular credit card, apply for the secured version. These require you to deposit money with a lender; your credit limit is usually equal to the deposit.  But be careful - there are a lot of bad guys out there - some charge outrageous application or annual fees & punitively high interest rates. Your credit union, if you have one, is a good place to look for a secured card.

7. Get a store card - gas companies & department stores that issue charge cards typically use finance companies, rather than major banks, to handle the transactions.  These cards don't do as much for your credit scores as a bank card, but they're usually easier to get.  Again, don't go overboard. One or two of these cards is enough.

8. Get an installment loan - to get the best credit scores, you need a mix of different credit types, including revolving accounts (credit cards, lines of credit) and installment accounts (auto loans, personal loans, mortgages). Once you've had and used plastic responsibly for a year or so, consider applying for a small installment loan from your credit union or bank. Keeping your duration short, no more than a year or two, will help you build credit while limiting the amount of interest you pay.

9. Use revolving accounts lightly but regularly - for credit scores to be generated, you have to have had credit for at least six months, with at least one of your accounts updated in the past six months. Using your cards regularly should ensure that your report is updated regularly.  It also will keep the lender interested in you as a customer.

Just remember these credit tips:

*Don't charge more than 30% of the card's limit

*Don't charge more than you can pay off in a month.

*Make sure your bills on time

Liz Pulliam Weston

 

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