How to Build Credit From Nothing

Establishing credit history is a vital part of consumerism for those who plan to eventually borrow money from a bank to buy a car, home or other major purchase. It is also commonly used by prospective landlords to check on a candidate's payment integrity. Without credit history, many consumers are denied loans or apartments. Establishing good credit history is simple but takes time. For young adults, new credit can sometimes lead to life-long debt if there is no foundation for good money management. With responsible practice, a good credit history can be established at the onset that can lead to qualification for prime bank loans in the future, making it easier to buy a car, a home or other major purchases.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Computer with Internet connection
• Funds for an initial deposit
• Online bank account with automatic payments feature
• Money strategy

Establish Excellent Credit History and Rating with Responsible Money Management

1. Visit creditcards.com and apply for a prepaid credit/debit card (see Resources). These offers require no past credit history and are also good for those who wish to park some money in an interest-accruing account that can earn up to 5 percent on the balance, similar to a high percentage yielding savings account. Peruse through the different offers and choose the best offer for your situation.
   Use your card for convenient purchases and pay back the amount to begin creating a history of payments on a credit card account in good standing.
   After several months of usage, you will qualify for other credit card offers that may offer a limited credit limit amount and a high APR.

2. Do not misuse your new line of credit by making purchases that you can not easily pay off. Remember, credit is debt, and misuse of your new buying power may lead to bad credit or extremely high APR fees on your purchase balance. Use this credit card for purchases that you can easily pay off within the grace period.
   Continue to practice responsible credit line usage and periodically contact your credit card company to request for higher credit lines and lower APR.

3. Make purchases that you can pay off in two to three statement cycles to show that you can pay off a debt and garner a higher credit score. This process may end up costing a bit more than the actual purchase due to accrued APR interest, but it will establish good credit history as long as you keep up with the payments on time. Avoid missing or being late on any payments.
   One sure way to avoid late or missed payments is to establish an automatic payment schedule with your bank account or original prepaid credit/debit card. Be responsible and make sure to establish a regimen of checking on your credit card accounts via online or by phone. This is a good practice of making money work for you.

4. Continue to make payments on balances on your credit card account and periodically request for a higher credit limit and lower APR. After a year or so of this practice, you will establish good credit history, which will reflect on your credit score. Banks and other credit card companies will send you preapproved credit card offers that you can take advantage of, but keep in mind, having a higher credit limit makes you prone to bigger debt. Avoid this by using your new purchase power only for balance amounts you can easily pay off on schedule and within several cycles, APR fees included.

5. Check on your credit score periodically by applying for a free credit score check with the three main credit reporting agencies: Transunion, Experian and Equifax.
   Visit freecreditreport.com to view your standing and to be clear on who and how many companies are viewing your credit history (see Resources). Soon, you will see your credit rating rise from good to excellent as long as you maintain a consistent payment schedule without ever missing a payment or being late.

Tips & Warnings

• Newly acquired purchasing power may sometimes skew our own sense of judgment and may lead to an overwhelming debt that will accrue in high interest rate fees and possibly cause missed or late payments. Avoid this at all costs as this will be a negative factor on your credit history and rating. Always keep in mind that the goal is to establish a high credit rating so that you may eventually petition a bank or lending company for a big loan with low APR to purchase a car, home or other major purchase. These prime loans are only available to consumers who have excellent credit history. Keep a close watch on your credit and make affordable purchases only.
• Credit card companies make their money by the debt you incur. By making unaffordable purchases, you set yourself up to an extended payment schedule with added APR fees, making your purchase more expensive. Practice restraint on purchases and avoid using your credit card without payment strategy. Most credit cards offer low introductory APR, which eventually expire. Keep a close watch for this so that you may transfer the balance to another credit card if any remains at the end of the introductory period. Missed payments will automatically jump your APR from a low 9.99 to 12.99 percent to 29.99 percent and above. Do not miss any payments or be late.

Resources

• Apply for Credit Cards Online
• Free Credit Report

Who Can Help Sponsored

• How strong is your score?  Did you know checking your own credit won’t affect your score? Click here to see yours in two easy steps from Experian.
• A Bad Credit Score is 598 or Below. Checking your own Credit Report won't affect your score! See instantly for $0 by Experian® www.FreeCreditReport.com