Building Your Credit Score from Scratch

building your credit scoreCredit scores can have a big impact on a person’s ability to secure a loan, be approved for an apartment, or receive a favorable interest rate on a credit card.  These scores reflect a person’s ability to pay back the money based on their history of borrowing and repaying money.  But what if you don’t really have any history yet?  If you are just moving out on your own, you probably haven’t ever had to borrow money so you won’t have a credit history.  How can you go about building a good credit score when you are just starting out?

Get a Little Help From Family or Friends

One of the best ways to build some credit history without having a credit card of your own is to become an authorized user on someone else’s card. Parents often allow their kids to be authorized users on their cards. You just want to use caution that you don’t tie yourself to someone with bad credit since your credit will be affected by the credit of anyone on whose account you are an authorized user.

Start Small and Secure

Getting approved for a credit card or an unsecured loan can be a challenge when you don’t have much of a credit history. However, you can sometimes apply for what’s called a credit builder loan. In a credit builder loan, the bank will set aside the money you are borrowing in a savings account, which you don’t have access to until you pay back the money. While this is technically not a lot different than just saving up money, it shows that you can be relied on to make payments.

Show You’re Good for Your Obligations

If you are already making monthly payment such as rent and utilities, you can have these reported to the credit bureaus. While these kinds of payments are technically not credit, paying them on time does demonstrate that you are responsible to meet your obligations in a timely manner.

Make Payments on Time

No matter whether you are repaying on a small load, paying rent, or making payments on a credit card, make sure that your payments are made on time. That is one of the biggest factors in establishing good credit. It is better to only apply for small credit extensions and pay them off on time or early than to extend your credit beyond what you can repay in the agreed upon terms.

Building credit takes time and building a good credit score takes a lot of time. Be patient and keep doing your part. Your score will grow over time as you show yourself to be a good credit risk.

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