How To Build Your Credit From Scratch

Build Your Credit From Scratch

How To Build Your Credit From Scratch

As of 2010, 26 million consumers in the United States were credit invisible, representing about 11 percent of the adult population. An additional 19 million consumers, or 8.3 percent of the adult population, had credit records that were treated as un-scorable by a commercially-available credit scoring model.

If you’re a regular reader of this blog, you probably don’t  fall into those categories. But if you trying to help friends and family get started and build their credit score from scratch, this post might be useful. If you’re trying to improve your score or want to learn more about how it works, then you should probably read this previous post.

So let’s get into it and see how you can build your credit from scratch.

Become An Authorized User

This is the easiest way to get your first credit card, especially when you’re young. Most likely the person helping you out would have to be a family member or someone really close to you that would trust you with their card. Make sure they have a good credit score themselves because these accounts will appear on your credit report They actually don’t even have to give you the card, as all activity on the account will be reported to your credit score anyway.

I mentioned above to make sure they have goof credit because if they mess up their credit, they will make things harder for you as well. Essentially, the primary account holder’s actions look like your own. If they have a late payment, you have a late payment. If they max out their cards, so do you.

Apply For A Secured Credit Card

If you’re starting from scratch, then you might wonder how can you can build your credit on your own? You need to have credit cards to have a good credit score, but you also need a good score to get a credit card. While that’s true, it only applies to unsecured credit cards. So you will need to look at secured cards instead.

A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $200 in the account, you can charge up to $200 on your card. There’s no risk involved for the bank, since you’re using your own money. These cards come with high APR and fees usually so make sure to pay on time and in full.

When you decide which secured card to get, you should look for a credit card issuer that reports information to all three major bureaus. This way you’ll build credit with all three of them. Also make sure to get a card that has a low annual fee, or no annual fee at all. If you’re able to convert it to a unsecured card later, that would be even better since a longer average age of accounts helps your score.

Build Your Credit From Scratch

Apply for a Secured Loan

Secured loans are similar to secured credit cards. You will need a cash collateral deposit in an account that will guarantee that you will pay the loan in full. So if you take out a $500 secured loan, you will need to deposit $500 first.

Although it looks similar to the secured card, this is a different type of loan that will help diversify your credit history. It’s better to have a loand and a credit card in your report, than just two credit cards.

Open Store Credit Cards

Store cards don’t usually make sense for people with good credit, unless they come with some great benefit or if you’re able to get them without a hard pull. But they are a good option for those starting out, or even people with bad credit. The good thing about store cards is that you don’t need a high a credit score to to qualify for one. Banks are more lenient with store cards, although they will usually give you very low credit lines. That shouldn’t matter though as long as you use it (try to stay under 30% of credit limit) and pay it on time. You can even open a few store cards, which will give you a higher credit limit in total.

Pay Your Rent on Time

Paying your rent on time shows responsibility. So this can be a good tool to help you build a solid credit report from scratch.

Experian acquired RentBureau in 2010 and your rental payment history can now be factored into your credit score. RentTrack reports your payments to all three major credit bureaus and can apply 24 months of back payments to your credit history. Bilt also reports on-time rent payments to Equifax, Experian and TransUnion free of charge.

Build Your Credit From Scratch: Guru’s Wrap-up

You now have an idea on how to build your credit from scratch. However, you should always remember to pay your cards on time. No matter what tricks you use, if you’re missing payments, you can not build a good credit score.

It’s also important to check your credit score at least once a year, and possibly even more often. That way you can make sure that everything is accurate and that there are no errors that could be negatively impacting your score. You can get a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once a year at annualcreditreport.com.

DannyDealGuru has partnered with CardRatings for our coverage of credit card products. DannyDealGuru and CardRatings may receive a commission from card issuers. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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