How to build credit?

1. How to Build Credit from Scratch

Apply for a Credit Card

Secured Credit Cards

• Utilize a secured credit card as a low-risk option.
• Deposit a sum of money as collateral.
• Pay off balances on time to avoid high APRs.

Student Credit Cards

• Tailored for college students.
• Features low interest rates and competitive rewards.
• Ideal for those starting with limited credit history.

Store Credit Cards

• Available at various businesses.
• Often has low or no credit score requirements.
• Use responsibly for necessities.

Report Rent and Utilities

• Although not typically reported, ask landlords to report rent payments.
• Timely payments showcase your ability to meet financial obligations.

Take Out a Credit Builder Loan

• Offered by banks, credit unions, and self-lending companies.
• Small-scale loans designed for credit building.
• Make timely payments to establish positive credit history.

Negotiate a Loan

• Negotiate loan terms for significant purchases.
• Consider collateral or a cosigner for favorable terms.

Consider a Cosigner

• Useful if lacking sufficient funds, under 21, or with no credit history.
• Requires a cosigner with a strong credit history.
• Payments impact both your and the cosigner’s credit.

2. How to Continue Building Credit

Become an Authorized User

• Be added to someone else’s credit card account.
• Builds credit without full responsibility for debts.
• Choose a trusted friend or family member.

Pay Off Credit More Often

• Pay more frequently than the required monthly payment.
• Keeps credit utilization low and demonstrates responsible financial behavior.

Request a Credit Limit Increase

• Ask credit card lenders to raise your credit limit.
• Pay off outstanding balances before making the request.
• Lenders may consider factors like payment history and frequency.

Check Your Credit Score and Reports

• Monitor credit score regularly.
• Identify trends and behaviors affecting your score.
• Check credit reports for accuracy and potential fraud.

Address Negative Credit Entries

• Identify and dispute inaccuracies on your credit report.
• Negative items can be removed if proven inaccurate.
• Consider professional help from credit repair services if needed.

3. How Is a Credit Score Calculated?

1. Payment History (35%)
   1. Timely payments positively impact credit.
   2. Late payments, defaults, and overdue amounts have a negative effect.
2. Amounts Owed (30%)
   1. Considers total debt and credit utilization ratio.
   2. High debts, missed payments, and high credit utilization impact negatively.
3. Length of Credit History (15%)
   1. Longer credit history adds credibility.
   2. A long, negative credit history can significantly lower the score.
4. Credit Mix (10%)
   1. Considers diversity in credit types.
   2. Various credit types (credit cards, loans) positively impact credit.
5. New Credit (10%)
   1. New credit applications and hard inquiries.
   2. Hard inquiries have a temporary impact; multiple inquiries in a short period can be viewed as risky.