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How to Build Credit from Scratch

It really is a classic Catch-22. You've got to have credit to get credit. So if you have no credit history at all, how should you go about building a good credit score from scratch?

The tactics will vary depending upon your personal circumstances, but several proven methods are sure to get anyone started in the right direction. If you just don't know where to begin, try the following three tips first.

1. Get a Secured Credit Card from Your Bank

Ask your bank where you have a checking account if they offer secured credit cards. Chances are they do, and secured cards are one of the best options for individuals building or rebuilding their credit histories.

They're called "secured" credit cards because your credit limit is secured by the amount you deposit in cash with the creditor. For example, if you deposit $1,000 in cash, then your credit limit will be $1,000. And since you have basically pre-paid for the maximum amount you may charge to the card, the creditor is guaranteed you will never miss a payment.

In return, most banks will report your activity on a monthly basis to the credit bureaus just as they would for an "unsecured" credit card.

2. Piggyback on Someone Else's Good Credit

Piggybacking is a technique that allows consumers with good credit to help boost other's credit scores by adding them as authorized users on accounts. If you haven't heard the term before, it's not a new thing by any means.

Parents have used the technique for a long time to help their children build solid credit while young. So, if you have a spouse, relative, or close friend with good credit who is willing to add you as an authorized user on his or her account, you're in luck!

This may be the fastest way to establish a credit history without actually securing a credit card in your personal name.

3. Carefully Choose & Use a Retail Credit Card

All of us have been bombarded with retail credit card offers at stores like The Gap, Express, or Banana Republic. Does the phrase "Would you like to get 10 percent off your purchase today" sound familiar?

You may be programmed to always says "No", and that's okay. But while retail credit cards generally carry very high interest rates, low credit limits, and other penalties the cashier won't tell you about on the spot, these credit cards are still much easier to obtain if you have limited credit history or none at all, and they're proven credit cards to build credit.

However, be sure to choose your card carefully, keep your credit utilization low, and pay your balance in full and on-time each month. If you do, a retail credit card can be an excellent way to build good credit history when there aren't many other options at your fingertips.

Unfortunately, today's lenders depend almost exclusively on your credit reports and credit scores to determine whether you will receive credit and at what rates and terms. So, you're fooling yourself if you think your credit score is something you don't need to consistently monitor and develop.

The truth is, establishing a good credit history at the youngest possible age has never been as important as it is today. Doing so will not only save you plenty of headaches in the long run, but your pocketbook will thank you as well.

Don't waste any more time procrastinating. Follow these three tips today and begin your journey to excellent credit on the right path.

on Sun, 2012-01-01 16:00