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Building Credit From Scratch

Establishing credit and learning to use it wisely when you are young can make your transition to adulthood much easier.

 

Having your parents include you as an authorized user or joint credit card account holder is an easy first step toward building a positive credit history. Equally important, you can help your parents review the monthly statements and perhaps even help make payments.

 

Learning about the entire credit process, from making a charge to paying the bill, will help you manage credit well when you get out on your own. Understanding the responsibility to make every payment on time is the key to using credit to work for you, rather than becoming a slave to credit.

 

But a positive credit history is more important than just being able to use a credit card to buy things. Your credit history may be considered by potential employers when you are looking for your first job. It may play a part in approving your apartment application. And, it will be critical for buying your first car so you can get to work every day.

 

If your job requires you to travel, you will need a good credit history to qualify for a corporate credit card used to rent a car, purchase airline tickets, pay hotel bills and buy dinner for clients. Even though you are reimbursed, most company cards are personal accounts.

 

While you can establish credit after graduating from college, it becomes more difficult. As a truly independent adult, lenders rely on your credit history to make decisions regarding your application. Without an established credit history, it becomes more difficult to qualify for credit cards or other types of loans.

 

College students are prime customers because they are likely to be financially successful and have proven to be loyal customers over long periods of time. So many students receive a variety of offers.

 

Most credit card companies only open accounts based on pre-screened applications offered to consumers whose credit history meets their risk requirements. If you don't have a credit history, you don't get any offers. College students are a rare exception. That doesn't mean you should complete every credit card application you receive.

 

Be selective. Only apply for accounts that offer the incentives you want and need. Those might include low interest rates, low or no annual fees, or even airline miles you can use to travel home between semesters, if you charge enough to justify the annual fee.

 

It also doesn't mean you can spend more than you can afford. Smart students use credit for convenience.

 

Responsible credit use while you are younger can build a strong credit history that will help you get your adult life off to a strong start when you set out on your own.

Reference: experian.com

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Our team has all the tools to assist you or your young adult begin on the path to a good credit report.  See the text to the right for insight on what it takes to build your credit.  Contact us when you're ready to start. 

Here are a few ways you can establish credit

  1. Apply for a secured credit card. If you're building your credit score from scratch, you'll likely need to start with a secured credit card. ...

  2. Apply for a credit-builder loan. ...

  3. Get a co-signer. ...

  4. Become an authorized user on someone else's credit card. ...

  5. Get credit for the rent you pay.   

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Applying for Credit at young age.

Typically, you must be at least 18 to apply for a credit card. If you are under 21, to get approved for a credit card, you must provide proof of your independent income or assets to show that you will be able to repay the amount you charge.

Secured credit cards require a deposit, which becomes your line of credit. Pay off your full balance on time each month to avoid paying extra in interest and to establish strong credit as quickly as possible. When your score reaches the mid-600's, you can apply for a traditional, unsecured credit card.

 

How long does it take to build good credit?

The good news is that it doesn't take too long to build up a credit history. According to Experian, one of the major credit bureaus, it takes between three and six months of regular credit activity for your file to become thick enough that a credit score can be calculated.  It will take you six months to accumulate enough history so a FICO score can be calculated. You should be able to get a Vantage Score much more quickly. You will not be able to build a credit score approaching 850 in that time period, but you may be able to break 700.

 

How to improve your credit in as little as 30 days?

Here is how to improve your credit score in 30 days:

  1. Pay down revolving balances to less than 30% ...

  2. Remove a recent late payment. ...

  3. Remove a collection account. ...

  4. Raise your credit limits. ...

  5. Charge small amounts to inactive credit cards. ...

  6. Get Credit by opening a new account.

  7. Clean up your credit report. ...

  8. Pay twice a month. ...

  9. Negotiate outstanding balances. ...

  10. Become an authorized user.

  11. pay your bills on time - all of them. Paying your bills on time can improve your credit score and get you closer to an 800+ credit score. ...

  12. don't hit your credit limit. ...

  13. only spend what you can afford. ...

  14. don't apply for every credit card offered. ...

  15. have a good credit history. ...

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Paying the debt won't necessarily help your credit scores. Accounts that get to the collection stage are about as negative as it gets. ... In short, paying debts in collection won't influence your credit score. It may, however, influence a lender who looks beyond your score to its source, which is your credit history.

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If you have no credit score, you don't have a credit history. ... A secured card or credit-builder loan is a good option in this situation, as well. You also may qualify for a bad-credit personal loan. If you still have open accounts, pay down the balances but don't close credit accounts if you can avoid it.

 

Installment loan accounts affect your credit score differently. ... And while paying off an installment loan early won't hurt your credit, keeping it open for the loan's full term and making all the payments on time is actually viewed positively by the scoring models and can help you credit score.

 

The Federal Housing Administration, or FHA, requires a credit score of at least 500 to buy a home with an FHA loan. A minimum of 580 is needed to make the minimum down payment of 3.5%. However, many lenders require a score of 620 to 640 to qualify.

 

Shoot for a Credit Score of 800, Not 900. A credit score of 900 is either not possible or not very relevant. ... On the standard 300-850 range used by FICO and Vantage Score, a credit score of 800+ is considered “perfect.” That's because higher scores won't really save you any money.

 

Secured credit cards require a deposit, which becomes your line of credit. Pay off your full balance on time each month to avoid paying extra in interest and to establish strong credit as quickly as possible. When your score reaches the mid-600s, you can apply for a traditional, unsecured credit card.

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