How to Build Credit When One Has None

Building a strong financial profile takes planning and consistency. If you are just starting out, no doubt you have run into the catch-22 situation of trying to obtain credit, but you are denied because you lack an established track record. Developing a credit profile and establishing yourself as creditworthy does not happen overnight. You must start small, remain consistent and over time you will establish a financial profile that will make it easy to obtain credit.

Instructions

1. Get a secured credit card. A secured credit card is one where you pre-fund the card. In essence, you send a check to a bank or financial institution for a certain amount and it issues you a credit card for that amount. For example, if you send a check for $500, then your credit card limit is $500. As you use the card, the financial institution will send you a monthly billing statement. The advantage to a secured credit card is that the bank reports your usage and payment history to the credit reporting agencies.

2. 

   Build credit by getting a retail store credit card. Retail store credit cards are usually easy to get but they charge high interest rates. Using a store card wisely for a period of a year does much to build your credit and establish a record of how you handle credit.

3. Take your time when applying for new lines of credit. A sudden flurry of new credit card applications in an attempt to build credit is not looked upon favorably by the credit reporting agencies. Therefore, it's best to get one card at a time. Establish a good payment record with one credit card company before opening another line of credit.

4. 

   Keep an eye on your outstanding balances. Refrain from reaching the maximum limit on any credit card. Credit reporting agencies look at the ratio of total available debt to the actual outstanding debt. If you use 99 percent of your available debt, it's looked upon unfavorably.

5. Pay your bills on time. Doing so helps to improve your creditworthiness in the eyes of the credit reporting agencies.

Resources

• Read this Article in Spanish
• Building a Better Credit Report