Building Credit the Simple Way

Establishing credit can be difficult if you have little or no financial history. The initial thing lenders want to know when you apply for a loan or credit card is what sort of financial track history you have, and they will check your credit score or FICO score to look into your past. If you have minimal credit experience, it can make it challenging or nearly impossible to get a loan. How can you build credit if you have no credit?

The following tips may help you on the path to building a solid credit foundation.

Open a checking and a savings account. Make a habit of using them on a regular basis by saving money for a rainy day and by repaying your bills promptly by check. It’s a small start, but these are financial transactions and they will help you build a credit history. Bear in mind that writing bad checks will defeat the purpose of having the account, so use the checking account responsibly.

Obtain a secured credit card. A secured card is one that has a limit that is backed by a cash deposit. The risk to the loan provider is minimal, as they have your cash on hand in the event that you neglect to pay. A card with a limit of as little as $100 might be helpful if you use it on a regular basis and pay your bill completely every month. Make certain that your bank will provide information about the card and your use of it to the credit bureaus. Secured bank cards have a tendency to have higher fees and interest rates than unsecured cards; you don’t want to use one if it is not going to help you in any way.

Check your credit report. You can obtain a copy of your credit profile for free at annualcreditreport.com. Make sure that the information on the report is correct, and look out for errors. It has been estimated that nearly a quarter of all credit reports have mistakes; if you have someone else’s debt recorded in your name it could possibly harm your ability to obtain a loan for years.

Wait. That’s the challenging part, but building any kind of FICO score takes time. You should use your checking account and secured bank card for a year or so, making regular payments. In time, you will build a FICO score that should earn you the ability to get more suitable accounts and small loans.

Building credit takes time and effort, but it is well worth it.