Credit Score, Credit History, FinanceandStoicism
Credit Score

How To Build Your Credit Score From Scratch

Building your credit score from scratch is not an easy thing to do. If you are newly trying to make your credit, you can soon realize that it can be tricky, and probably no one has ever taught you how. However, having good credit is crucial to have more choices in this economy.

In a place like the United States, without a credit history, it is hard to get a credit card, accesses a loan, or even just the fact of having access to an apartment as a resident.

Some people think that to have good credit, you need to make a lot of money, and this affirmation is far away from the truth.

Having a good credit score has nothing to do with your income or your net worth. 

Let’s put an example: you can have an annual income of $5 million a year, and your net worth can be $100 million, and you still can have a poor credit score, because it has nothing to do with your income. On the other hand, you can have a salary of $40,000 a year and a net worth of $60,000, and you can have an excellent credit score.

In a place like the United States, without a credit history, it is hard to get a credit card, accesses a loan, or even just the fact of having access to an apartment as a resident.

How Can You Prove a Good History Of Payments With Credit Card When You Don’t Have Access To a Credit Card? 

When it comes to start building your credit history, there are few instruments available: 

  1. One right way to start building a credit history is to ask for a secured credit card, co-signed card, or an authorized user on another person’s card. 
  2. Another way to make a credit history without a credit card is by using a credit-builder loan, secured loan, or co-signed loan. Using rent, phone bills, and utility bills can also be one way to build credit from scratch.

CreditScore, Credithistory. FinanceandStoicism

Five Mechanism To Build Credit Score From Scratch

A) Through a Secured Credit Card

The fastest and more convenient way to start building your credit score can be through a secured credit card. 

A secured credit card is a credit card backed by a cash deposit that the financial entity asks you to make upfront. 

Usually, the cash deposit amount is the same amount of the credit limit you have access to.

The use of a secured credit card is like any other credit card. You can use it with regularity for your payments plus the interest that you could incur.

It is essential to realize that using this kind of credit card is to build a credit score from scratch. Therefore, using this credit card is just for a specified period. 

Once you decide to close down your account, your cash deposit will be given back to you. 

A secured credit card’s main objective is to help you build enough credit history to order an unsecured card. 

Before joining any secured credit card, the first thing to do is check out if it makes reports to the three credit bureaus: TransUnion, Experian, and Equifax. 

 

A secured credit card’s main objective is to help you build enough credit history to order an unsecured card. 

B) By Getting Credit For the Bills, You Pay Regularly

One way to build a credit score from scratch is by using individual companies such a LevelCredit, Rental Kharma, or Experian Boost. This company takes some bills of yours (not all), and translate it into your credit report. This way, there will be a record of your right payments on-time.

The payments record reported by this mechanism will help you build a positive credit score that will allow you to get a credit card or loan.

C) By Getting a Secured Loan or A Credit-Builder Loan

Some banks give you the chance to get a secured loan or a credit-builder loan.

The main objective is to build a positive credit history from scratch.

Once you have some money in the bank, you can ask them for a secured loan for credit-building. If they accept, they can use your own money in your account or certificate of deposit as collateral for the loan.

D) By Using a Co-Signer

There is a change in an unsecured credit card or a financial loan by using a co-signer.  

I am not going to get into many details about this procedure, but it is essential to read and understand all the terms and conditions when using this method; The co-signer would have to pay for all debt if you don’t pay.

E) Become an Authorized User

Becoming an Authorized User is a system that I like a lot, particularly.

You choose to use your spouse or a close family member to incorporate you as an authorized user on his or her card.

Why Dod I like this choice? Because by joining this method, the card’s payment history files to your credit history. Of course, it is obvious to say that you must be wise to choose a person who has a long and positive credit history of on-time payments.

You don’t have an obligation to use or even possess the credit card to benefit from being an authorized user of that credit card. 

Being an authorized user is an easy way to accelerate the process of generating a FICO Score. 

You must make sure that the credit card that you use or is being used as you as an authorized user reports the activity to the three credit bureaus. 

 

CreditScore, Credithistory. FinanceandStoicism

Being an authorized user is an easy way to accelerate the process of generating a FICO Score. 

Main Key Factors To Build Good Credit Score

The leading cause that builds a good credit score is time and a long history of on-time payments. So be disciplined and have patience are key personal components to make a good credit score.

To own a FICO Score, you need two main requirements: 

a) You need one account that has been open for at least six months or longer.

b) One creditor reporting your regularly your activity to at least one of the three credit bureaus in the past six months.

Once you understand the two main requirements for a FICO Score, you should know four critical pieces of advice to build good credit: 

  1.  Keep your credit utilization low: credit utilization means the percentage of your credit limit you use. My recommendation is to keep your credit utilization between 20%-25%. To put an example: if your credit limit is $10,000, you should only use $2,000-$2,500 maximum. 
  2. The next one is more than obvious: have 100% of your on-time payments. This includes not only credit accounts but all of them, such as utility bills. Commonly, the bills that haven’t been paid on time are sent to some collection agency, which will make you a lot of severe damage to your credit score in the future.
  3. Try to avoid at any cost to apply for multiple credit accounts at the same time: when you use for different credit cards at the same time is hurting your credit score. You shouldn’t do that, and if you are thinking about applying for different credit cards, you should at least keep a certain period between them. 
  4. Don’t close down the credit card account. It would be best if you tried to keep your credit card account open unless you have a strong reason to close it down. By closing down your credit card account, you are also reducing your credit score and lowering your punctuation.

The leading cause that builds a good credit score is time and a long history of on-time payments. So be disciplined and have patience are key personal components to make a good credit score.

Why Is a Good Credit Score Vital In Your Finances? 

Credit history or credit report is based on how you used your credit in the past; this is why it takes time and credit history to build a credit score.

Your credit score is going to indicate the probabilities of how good or how bad you are going to use your credit shortly, based on your past behavior.

You need to check out your credit score regularly and your credit report so you can learn from your past mistakes and improve your future actions.

If you haven’t gotten the chance to read the previous articles about Roth IRA and Equity security, don’t hesitate to take a look:

Roth IRA: Check Out This Amazing Investment Tool

What Is a Security In Finance?

 

You need to check out your credit score regularly and your credit report so you can learn from your past mistakes and improve your future actions.

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