How To Build Credit From Scratch

credit card score

Math tends to be a very favorite subject of some and a much-hated subject of everyone else. Count me in the “I don’t care much for math,” category and call it a day. Numbers do nothing for me past allowing me to balance my checkbook, being able to make calls or send texts or know what time I need to be somewhere – and birthdays. Otherwise, numbers aren’t that much fun. While most people spend their lives focused on a few very specific numbers, such as their age or their bank account balance, many forget to focus on the most important number in their lives; their credit score. It’s the single most important number you will ever have in your life, and no one bothers to teach kids this information. School makes you learn how to add letters and numbers and triangles in one sentence, which is something probably 90% of kids will never use again in their entire lives – ever. But what school does not teach you is the most important number you have in life; your credit score.

Your credit score is far more important than your age. It’s the number that tells people whether or not you are someone to whom they can lend money to buy a home or a car. Your credit score can affect your insurance, your ability to get a job and so much more. So this is a number that’s so important we can’t even begin to tell you how important it is. And for many, the realization that this number can dictate the course of your entire life comes entirely too late. It comes when someone is looking to buy a home and can’t. The realization comes when someone is looking to get a job and they are turned down from the position because their credit score makes them a risky hire. It’s just too late. But for high school students and college students, it’s not too late to learn how important your credit score is to your life. It’s not too late because you either have no or very little credit at this point. So let us help you learn how you can build your credit score from the ground up so that you don’t make common mistakes that will haunt you forever.

Understand Your Credit Score

The most important thing you can do to help to ensure that your credit is good from day one is to know what scores mean. They’re not all the same. Some people assume that good credit is good. While it certainly isn’t bad, it’s not excellent. And the difference between good and excellent can make a big difference in the way that you life your life – and how you pay for it. While all the credit bureaus look at and calculate your credit score differently, there are certain numbers that means certain things.

Some credit bureaus consider a good credit score above 700 and an excellent score above 800. Others consider good above 720. And having a credit score of 699 might seem ‘so close’ to what’s considered good, but it’s not going to make a difference to lenders in terms of giving you better rates.

The rule is that the higher the score, the better your credit. The average range is from 300 to 800 and you do not want to be low on that list. Most people have a credit score that’s above 600, and you really need yours to be higher than that to be considered even remotely credit-worthy in most instances.

Start Building Credit

Here’s where things get a bit tricky. To build credit you have to have credit. But to get credit you have to have credit. See what I mean? It’s not easy to get credit without credit. What this means is that no one is going to sell you a home or a car without a credit history to your name. One of the best ways to establish credit is to open a bank account. Most lenders are more willing to issue someone with no credit a bit of credit if they can prove that they have a steady history of making deposits and withdrawals. You should apply for credit cards when offers come around – but not too many at a time or your score will drop. A small card with a low limit is a great way to start building your credit.

Additionally, you will find that you can open a secured credit card with some card companies. You will find that you can put down a deposit and get a credit limit in that amount so that you can make purchases and payments and begin building your credit history.

Also Pay Credit Cards On Time

Here’s where you have to be very responsible. You need to make absolutely all your payments on time, every single time. Even missing just one payment can result in a negative report on your credit report which is going to drop your score. Since you haven’t much of a score at this point, you certainly do not need it dropping anymore than it already is. All bills should be paid on time every time. In fact, you should really take advantage of the online bill payment that some people offer so that you can schedule your payments in advance to ensure that they are not late in any way. It’s just a good practice to always pay bills on time. If you choose to mail your payments, you will want to mail them at least 10 days in advance to ensure that the mail has time to arrive. Even over-the-phone payments are a good idea for many people who choose to make their payments at the last possible minute.

Get A Retail Credit Card

If you have a difficult time getting a credit card, you might choose to get a retail card. It’s a lot easier to get a retail card for a store such as Target or Nordstrom or even just a small boutique store than it is to get a major credit card in many instances. Your available credit will very likely begin on the small side, which is fine, and you will be able to make purchases that are small.

Keep Credit Card Balances Low

Another rule of thumb that no one bothers to mention when it comes to building your credit from the ground up is that you should keep your balances low. A good idea is to pay off your cards in full each and every month. You shouldn’t carry a balance at all. If you do, however, try to keep the balance at or below 30% of your available credit. For example, if you have a card with a $1000 credit limit, you’ll want to keep your balance at or below $300 if you must carry one. Allowing the balance to get any higher than this really does a number on your debt-to-income ratio. When your debt looks larger than your income or when your debt is almost as much as your available credit, it doesn’t look good to lenders who want to lend you money.

One of the important concepts to keep in mind is the fact that you have to keep your balances paid off, and you need to avoid having too many cards. That’s what we will discuss next.

Don’t Overspend On Your Credit Cards

Too many people make the mistake of applying for cards that they don’t need thinking that they will help to improve their credit score in a significant manner even though this is not necessarily the case. For example, getting too many cards is going to negatively affect your score in that you will have too much available credit and that will make your debt-to-income ratio smaller.

Imagine this; you have 10 credit cards and you have a decent income and you want to buy a small starter home. The problem is that you’re having a difficult time finding financing because you have all these credit cards with high limits and high balances and you can’t afford a house according to what the bank can see. It’s just a negative effect all over the place. While it’s not a bad idea to have a few cards, perhaps a major credit card, a store card and another card if you must, it’s not a good idea to have more than that. And remember – keep the balances paid in full or as low as possible at all times.

Don’t Co-Sign A Credit Card

A common mistake so many people make is co-signing loans when they finally do get credit of their own. You know to make your payments on time and to make sure that you are able to pay the balances each month, but you do want to know that the signatures you provide are going to affect you. Say you decide to co-sign a loan for your fiancé now that you are building credit so that she can get it, too. But then you break up and she decides she’s not paying for that car anymore and you’re either left with a car payment you might not want or a negative credit rating if the vehicle is repossessed. You have to make that decision and go from there. It’s up to you how that will work out for you, and it’s your business. But don’t do it; don’t co-sign a loan for anyone else at any point in time.

Monitor Your Credit Report

This is another thing that people often forget to do. You need to monitor your report so that you can see what’s going on in there at all times. Monitoring your credit score is going to allow you to see if your report has things on it that aren’t yours. For example, you might be the victim of identity theft, which means that you have to put a freeze on your credit and stop people from using your name to spend your money. Additionally, you might find that there was a mistake on your report that was input by mistake. You have to notice these things right away so that you don’t have to find out the hard way. Nothing is more miserable than going to apply for financing for a house only to find out you don’t qualify because of a mistake someone else made on your credit report. Since these things often take a bit of time to be fixed, you are the one who suffers.

Do Your Research

The most important thing you can do for yourself before you do anything is your research. It’s always a good idea to go ahead and help yourself out by reading as much as you can, talking to financial experts and getting the best possible advice. Do not go into building your credit from the ground up assuming that it’s fast or simple or easy. It’s not; you have to be vigilant at all times, especially when it comes to your credit report. Additionally, it’s going to help you to keep copies of your financial records somewhere safe, such as your safety deposit box or a fireproof safe.

Some Extra Information

Never keep all your money in the same place at the same time. For example, it’s a good idea to have a credit card at home that you don’t carry with you. This is so helpful if something happens and your wallet is stolen; you’ll always have a card you can keep active and use while your new cards are on their way. Additionally, never keep information such as your Social Security Number in your wallet. You should keep your account information for all your credit card and bank accounts somewhere easily accessible to only you at home so that you can call right away if your cards are compromised or your bank account is compromised in any way. We want you to be safe with your credit, and that means being safe with it forever and not just while you’re working on building your credit from the ground up.

Photo Illustration by Justin Sullivan/Getty Images


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