Are you currently trying to build credit from nothing, but don?t know how? I have had a number of friends that thought they were doing the wise thing because they never fell into the temptation of getting a credit card and therefore never got into any debt. However, when the time came for them to buy a house, they ran into major issues because they didn?t have any credit history.
I urge you not to be like my friends. While it may be difficult to build credit from nothing, it most certainly is possible to do. After all, it?s something we all have to do at some point in our lives as so many institutions care about our credit scores.
Start Building Credit With a Credit Card
I know it might seem counterintuitive to many, but building credit from scratch generally requires getting a credit card. When you choose to get the card will depend entirely on your given situation and circumstances. You can start as simple as getting a student credit card where your parent is also on the account or getting your own card while in college. Again this is going to depend on what your given situation is.
Thankfully credit card companies aren?t allowed to target college students illicitly any longer, but college or very soon after is likely when you would generally start thinking of building your credit – if you’ve not done so already. Generally speaking, you?d want to make sure you have a job and use the card sparingly while paying it off each month. By following this pattern, you?ll show the card companies that you?re somewhat trustworthy and allow you to start to build credit.
What if You Can?t Get a Credit Card?
For whatever reason, some people just can?t get approved for a credit card. If this is your struggle, then the last resort option is a secured credit card. There is usually some sort of fee for this sort of card, but if you are having trouble building your credit, then this could be your only option and the fee is likely worth the cost in the long run.
Simply search for a secured MasterCard or Visa through their sites and pick the one that suits you best. You can then preload money onto this card and use it as you would a regular credit card. The limit on a secured credit card is usually the amount that you preload onto the card, though it can vary on occasion. Start with a manageable amount and use the credit card wisely while also handling it responsibly. After some time this should be able to allow you to start building credit at which point you can get an unsecured credit card and stop using the secured one.
Pay Your Bills
Some people have trouble building credit from nothing because they were not responsible for any bills while they were living at home. Either that, or you just reimbursed your mom and dad for bills that were yours, but came in under their name. One of the classic examples of this is your cell phone?bill.
If you are interested in building credit, then it is in your best interest to get that bill put into your name. By paying this bill on time each month, you will be boosting your credit score and establishing a reputable credit history
Pay Your Bills On Time!
Your credit score is made up of a number of factors, but the key factor is your payment history. In fact, it makes up 35% of your credit score and thus very important if you?re looking to build credit from scratch. The last thing you want to do is have a bill and forget to pay it. That missed payment will be reported to the credit reporting agencies and thus negatively impact your score.
If making timely payments on your bills is a challenge, then do what you can to remind yourself. You can go as simple as marking your calendar to setting a reminder on your phone. Heck, many service providers even provide free text alerts to let you know when a bill is due.
What do you think is the biggest challenge in trying to build credit from nothing? What did you do when first establishing yourself to build up credit?
Photo courtesy of: sovietmole
*This post was featured on 2 Copper Coins
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Department store credit cards are another good option for building a credit history. Most stores are eager to issue cards to customers in order to lure them back to shop for more. Credit standards are often very lenient, and they will issue small lines to people with little or no history.
Switching a cell phone bill to your name may only raise costs, without adding to history. Cell phone providers do not report positive payment data to the bureaus. They only report accounts in collections.
That’s a great point Kevin, I completely overlooked the store credit card option.
I actually just wrote a post about this for another site and I said that if you are using a secured card (and this applies to new credit users) you should think about it as driving with a learner’s permit. Credit card companies are watching you to make sure that you are a safe and responsible user. If you obey all the rules and use your cards responsibly, you will get more benefits like higher credit limits and a higher credit score.
That’s a great correlation Shannon! You’re exactly right, if you treat them wisely and responsibly it’ll open up more possibilities for you.
I started building my credit with a simple store credit card. It was a Macy’s card and I believe it had a $100 limit. You have to start small sometimes! =)
Yep, you do need to start small sometimes and if you do it right it’ll open up more things for you.
I am with others in that my first journey in the credit world was a store credit card, which I still have. I think they gave me something like $260 or $280 as a limit. It was for Meijer and I really like having it because they will often do credit card sales where you can get an extra 5% off food/HBC and 15% off general merchandise. Knowing these deals come up usually monthly it is easy for me to be patient buying new stuff “we’ll just wait til next credit card sale”
Sounds like a pretty sweet deal Kipp!
Good points. After you’re able to get a credit card try not to go near the limit – it will be easy since the limit will probably be $200 – but if you keep your balance low and pay it off every month, you not only will improve your credit, but you won’t pay interest as well. Pay your bills and pay them on time.
Completely agreed Aldo. I say just use it for something small each month and pay it off in full each time. That practice will help you build up credit fairly well.
Thankfully, I qualified for a credit card when I first applied, but I’m not sure what that initial credit approval was based off of.
Very nice Stefanie, you can’t complain about that!
Paying your bills on time is the biggest thing for me. I found that once I did that, everything started falling into place behind it 🙂
You’re exactly right Ryan! That usually is the best thing to do and start with. 🙂
We had to get secured credit cards when we didn’t qualify for actual credit cards when we didn’t have any history. I still think they are smart, and they keep you from spending more money than you actually have.
Great tips. Start with a credit card, and go secured if you have to. That’s the best way to start. From there, it just takes some time. My credit is great, but I still don’t have the best possible score, due to my account history. It’s simply not long enough, since I am still somewhat young. It will always get better with time if you pay your bills on time, but when your starting out, your just trying to get above that 700 or 730 mark. Great article!
I think secured is the way to go, especially if you know that you can’t keep track of your finances or if you know that you can’t handle the responsibility of having a large credit limit.
These are some great tips – thanks for sharing! building credit early in life is so important too – the longer your credit history, the better.