Build your Credit from Scratch

Think of your credit like your financial resume. And whether you’re applying for a new house, car or just a new cell phone plan, experience is the most important thing.

While that simple fact puts a lot of pressure on your financial past, the good news is that if you’re starting from scratch, building credit doesn’t have to be complicated. And improving your credit doesn’t have to be a headache either. Take some simple steps now so that a globe-trotting vacation or low insurance rate becomes more than just a pipe dream.

1. Get a credit card

I know what you’re thinking. I want a good credit card, but that’s impossible with no credit. Actually, banks and credit unions have options just for you.

Secured credit cards require a cash deposit as collateral, but are great options for credit newbies. Try to find one that reports to all three credit agencies and that doesn’t charge an annual fee.

A cosigner on a credit card can increase your chances of qualifying for one. Talk to your family members and see if someone will back you. Keep in mind that person will be responsible for paying the balance if you don’t.

Become an authorized user on someone else’s credit card. As with a cosigner, he or she will be responsible for the balance, but there is less pressure on you to open up your own card.

2. Take out a loan.

Again, I know what you’re thinking. I’m one step ahead of you.

Credit builder loans from credit unions are designed for people wanting to build their credit. The money lent to you is placed into an account where you can’t touch it until you’ve paid it back. Traditional loans give you the money up front, but with credit builder loans, they give you the money at the end of the loan term.

Student loans do have one benefit aside from facilitating our higher education: they build our credit. And with over 44 million Americans dealing with student debt, it’s good to know an added bonus exists.

Car loans are another great alternative if you make those timely car payments every month. Granted, paying in cash will save you on interest, but it won’t build your credit.

3. Pay your rent and utilities on time.

Services like RentTrack and PayYourRent report your timely rent payments to the three credit agencies to help you build your credit. (In some cases, landlords will report this information, but if they don’t, these services are available.)

Also ask your utility companies if they can report your payments, too.

What else should I know?

• Any account needs to stay open for at least six months in order for you to have a credit score.

• Don’t confuse a credit score with a credit report. A credit report is a list of your financial history that is used to determine your credit score.

Your credit is important! Even if you don’t have any current plans to buy a house or a car, you won’t be able to make up for lost time as quickly as you may like. A few easy steps now will make a difference in the future.