5 Ways to Build Credit from Scratch

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credit cards, credit management, credit report, credit scoreIf you just turned 18, it’s time to start thinking about credit and your financial future. Your credit report will affect almost every important financial move you’ll make, including buying a home or car. It may even affect your chances of getting a job, as employers can check your credit report during the hiring process.

The good news is you have a clean credit slate and the chance to start off on a positive note, establish good credit and keep it there.

[Free Resource: Check your free credit report and score]

Five tips to help you build credit from square one

1. Open a credit card account.

If you’re able to qualify for a new credit card, make sure to keep your total balance low enough so you’re able to pay it off each month.

Your “payment history,” or how reliably you pay your bills on time every month, makes up about 35 percent of your credit score. Since you’re building credit from scratch, you have the opportunity to create a flawless payment history. That’s why it’s smart to keep balances low, at least at first. Starting slow and creating good credit habits early on will help you establish a solid credit score in the short-term and also maintain a good credit rating in the long-term.

If you’re unable to open an unsecured credit card (that’s the “standard” type of credit card) because you don’t yet have a credit history, don’t fret! Another avenue for establishing credit is a secured credit card. A secured credit card is just like an unsecured credit card, only you put down a security deposit up front to provide assurance to the bank or creditor that any debt you take on will be paid.

Because a secured credit card has built-in safety measures – for both you and the creditor – it’s a great option for many people who are just getting started with credit. And just like a “regular” credit card, a secured credit card will help you build credit, provided that you make all your payments on time.

2. Pay your bills on time every month.

It may seem simplistic and redundant, but paying at least the minimum payment (the minimum amount you’re required to pay) on time every month is the most important thing you can do to build and maintain a good credit score. Period.

3. Be patient.

You may have to wait about six months after you’ve opened your first credit account before there’s enough credit information on you to tabulate a credit score.

4. Check your credit report every six months.

So you’ve opened a new credit card and paid each bill on time every month for about six months, now what? Check your status! Find out what exactly is on your credit report, what your starting point credit score is and check back about every six months or so.

It’s also important to exercise a bit of caution when you check your credit report online. There are a lot of “free” credit report sites out there littered with catches and gimmicks. Make sure you choose the real deal. The only website that gives you both a totally free credit report and free credit score, no strings, no trial subscriptions, no credit card required, is Quizzle.com.

5. Only apply for credit you need.

To start, one credit card should be sufficient. Prove to yourself that you’re able to keep the balance low on your one credit card and pay the bill on time every month before you consider opening up other credit cards.

If you feel like you’re ready to take on more credit, you may want to consider calling your credit card company and requesting a credit limit increase instead of opening a new credit card. Your request may be denied until you show them you’re able to manage your credit responsibly. Ask the customer service representative if they can tell you about how long you’ll need to wait, assuming on-time payments, until you’re eligible for a credit line increase. Set that time frame as your goal and continue to exercise steps two through four.

[Free Resource: Check your free credit report and score]

You have an opportunity here in that you’re starting from scratch. You have the choice to build a solid foundation for a credit history, which will open the door to the best interest rates and lowest payments on homes, cars and personal loans, or to ignore this privilege and responsibility, potentially damaging your credit score for many years to come and costing you a lot of money. Make the right choice! Years from now, you’ll be glad you did.

[Photo credit: http://www.flickr.com/photos/rashdan/ / CC BY-NC-ND 2.0]

  • http://msn.com diana armenta

    I dont think that people checking your credit should count against your score

  • http://yahoo melissa g

    I can see why it does because if a creditor sees that you went all over town trying to get different creadit cards it looks bad on you. They are going to think if you get all of them in a short time you would be more likely to be responsible about it and not go on shopping sprees because you have the credit available.

  • Tiffany

    Okay, so what do you do when no one approves you for either one based on lack of credit history?

  • Kyle

    Tiffany, go to a Credit Union. They usually loan at better rates, and provide loans with little to no credit history

  • Andy

    If you cannot get a secured credit card. Try your local community bank or savings and loans. They offer secured loans. Basiclly you give pay them the principal and they put that money into a CD which will earn interest for the term of the loan. You make payments for the term of the loan
    at anywhere from 1.5% to 4%. Sure you’r going to lose some money between the interest you earn and the interest you pay on the loan, but this will establish credit. You may be out $200.00 to $400.00. But if you are turned down for credit cards secured or not this maybe the way to go. Spend money to make money or credit in this case.

  • krankenkassen vergleich

    I think credit rating is getting a lot more important in todays world. People are not willing to take the same risks as before the recession.

  • http://www.brillosol.com.uy limpieza

    your article is very useful

  • lin

    I think that if you can’t buy it, don’t get it. While it may seem unrealistic to most, I like paying cash for everything.

    Sure I drove a beat up looking car (which ran great), and yes it took a lot longer than most to buy up the house, in fact took years of saving and then investing in small loopty loop apartments to rent out, and then more saving, all while still paying rent, starting a family, got 7 kids now, and just pushing forward.

    I know it may seem dumb to some of you, but if there’s anything I’ve learned it’s that you can’t trust credit card companies, banks, or any thing out there but what you earn and buy out right. Even then it’s a gamble (government even worse to deal with).

    I hope this article helps those trying to establish credit, but for you hard working, no drama wanting, no credit card hunting folks out there, try it on your own in cash, its well worth it.

    Oh! and no I’m not rich, my entire family is just below what most call middle class. We’re the working class, just a smidge above poverty. Wouldn’t trade it for the world, literally.

  • Kris

    There is nothing wrong with using credit for small purchases, or big purchases with 0% interest, as long as the purchases are paid in full when the bill comes. You cannot build up a credit history paying everything with cash. Paying with a credit card and then paying off the debt at least builds a credit history, but to each his own. I learned what my tolerance was and that was to pay little to no interest when making purchases, preferrably no interest; that has worked for me.

  • Cin

    I agree with lin above
    “I think that if you can’t buy it, don’t get it”
    BUT big BUT –
    What I do with my son is if he wants something he has to make payments into his savings account. Once the CASH is saved – I have a credit card that I got in his name – I give him his card and let him buy what he saved for and then the next week we write a check and pay off the credit card.
    This may sound a little weird but he learns to “make payments” into his savings account – I even go as far as say he wants a 500.00 stereo and he feels he can afford 50.00 a week, I take the deposit slips and make out “payment coupons” each check he tears one off and makes his payment.
    I am trying to teach him about making payments AND saving AND “I think that if you can’t buy it, don’t get it”

    Because now a days EVERYTHING is going off your credit score!!! When he got his car insurance – he didn’t realize that “he had a credit score” so he told them NO & I have also told him to NEVER agree to let anyone check your score so he told them NO again. Well they quoted him a price for his car insurance & was 223.00 a month. After talking with me about his coverage and stuff he said that they wanted his credit score – we called them back up and told them he did have credit and a GOOD score – they checked his credit and now his insurance premium is 178.00 a month!!!
    ALL BECAUSE OF A CREDIT SCORE – he was also hired in at his job at .95 higher than his peer because of his credit score.

    PARENTS I encourage you to help your children GET & KEEP a good credit score. I started my sons at 16. I used 2 methods I put the cable bill in his name and had it put on auto deduction and SECOND I got a secured credit card in his name.

    i have very bad credit and a very bad score from relationships and health problems & KNOW the pitfalls of a bad score. Being that we ARE in poverty level income I work very close with him on money and credit. He realized for the FIRST time HOW it effected HIM with his insurance and being 19 Male and an Average GPA. Even though HE “knew” it effected US when we would go to get utilities and would have to use candles and the gas grill while we had to wait a couple weeks to get a HUGE deposit that they would MAKE us have for my credit being bad.

    Sorry didn’t mean to write a book.
    Hope this helps someone out there.

  • Rafael

    Does anybody know if paying your cell phone bill builds up your credit? If you get someone to co- sign for you on a store credit card, does that help as well?

  • Russell

    Yes, Rafael, if someone co-signs for you on any major credit card or large retailer credit, the card info is reported in your name AND ALSO the credit reports of the co-signer as well ( be sure that the card you carry actually has YOUR NAME on it as there are those out there that carry only the credit-worthy applicant and verify the 2nd via phone or network ) so, be thoughtful of your co-signer and never use more than 50% of the credit available. Store cards usually charge hefty interest and fees so it is wise to pay the entire balance monthly, but if you can’t do that then try at least to pay the minimum payment due PLUS the interest charged to the account for that month. If at all possible, never purchase a major item the same day that you’ve shopped it. YOU WILL BE SURPRISED just how much your perception can change in only 24 hours and a week if possible. That little bit of advice has saved me a small fortune as I tend to change my mind at least two-thirds of the time!

    Also, I recently read somewhere, maybe TIME or USA TODAY that there is a way to get your utilities including cell phone bills reported monthly but sadly I cannot remember who it was just now but I am sure a broad search will pull something up….I will try and remember to do that and come back here to help you.

  • http://quizzle Buddy Blake Williams

    why is one of my debts reporting twice, thats 11 points wasted

  • http://Jaime Jaime

    I got sick and i felt behind on my bills. I have bills pending, It’s going to be 7 years will the negative credit go away, or do i still have too pay my past bills,

  • Anna

    People need to learn patience. Good Credit doesn’t happen overnight. I had a charged-off credit card and tons of collections at 21. I paid things off, and I was patient and finally at age 30, I got an unsecured credit card. 6 months later, I got a store card for one of the places I know I spend money and will pay it off (because I’d spend my cash their anyways). Then I got a $12,000 car load from my credit union. I am paying minimum payments plus whatever I can afford so I can keep my credit growing and in the next few years I hope to get a mortgage. Realize your mistakes, get your yearly credit report, pay off old negative accounts,and be patient. Within 10 years – if your diligent, you can fix almost all credit flaws.

  • http://feedback@quizzle.com Pamela Denning

    I enjoyed reading the comments: some good suggestions.