Building credit can be complicated. Without a credit card, it’s difficult to build credit history. Without credit history, it’s hard to qualify for a credit card. But if you start at the bottom and use credit responsibly, you can slowly work your way up to an excellent credit score. Take a few of these tips into consideration to help build your credit.
Understand the factors that influence your FICO score. The FICO score is the most commonly used credit scoring model. Your FICO is made up of these five factors: Payment history, credit utilization, length of credit history, types of credit in use, and new credit. The data that influences these factors comes from your credit report. You have credit reports from each of the three major reporting agencies — Experian, Equifax and TransUnion — and you have a FICO score from each as well.
Learn the guidelines for building credit. Make 100% of your payments on time, not only with credit accounts, but also with other accounts, like your utility bills. Bills that go unpaid may be sold to a collection agency, which will hurt your credit. Use your card regularly. Credit accounts that go unused may be closed by issuers after a certain period of time. When an account is closed, your credit utilization will go up and your length of payment history may go down. Avoid opening too many accounts at once because it can lower your average account age.
Know how to check your credit reports and scores. You’re entitled to one free credit report a year from each of the three bureaus. Many sites offer you free reports, but the legitimate site is AnnualCreditReport.com. Pull your reports from Experian, Equifax and TransUnion and use our guide on how to read your credit report to make sure nothing’s incorrect.
Get a credit card for no or low credit. If you’re flying solo, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit that’s usually equal to your credit limit. Also, be patient. If you’re using your credit card responsibly and following our guidelines above, all that’s left to do is be patient. Building an excellent credit score takes time. In the meantime, enjoy watching your score creep up from nothing to the 700-800s. Stay Wise! (References: NerdWallet.com, Erin El Issa)