Building credit from scratch can be a daunting task, especially if you are young or new to the world of credit. However, by following a few simple dos and don’ts, you can establish a solid credit history and increase your chances of approval for loans, credit cards, and other financial products in the future.
DO:
1. Get a secured credit card: A secured credit card is a great way to start building credit. With a secured card, you put down a deposit that acts as your credit limit. Make small purchases and pay off your balance in full and on time each month to start establishing a positive credit history.
2. Become an authorized user: Another way to start building credit is to become an authorized user on someone else’s credit card. This allows you to piggyback off of their credit history, giving you a boost in building your own credit.
3. Monitor your credit: Regularly check your credit report to ensure all information is accurate. Monitoring your credit can help you catch any errors or fraudulent activity early on, preventing damage to your credit score.
4. Pay your bills on time: One of the most important factors in building credit is making on-time payments. Late payments can have a negative impact on your credit score, so be sure to pay all of your bills on time each month.
5. Keep your credit utilization low: It’s important to keep your credit utilization ratio – the amount of credit you are using compared to the total amount of credit available to you – low. Aim to keep your utilization below 30% to show lenders that you are responsible with your credit.
DON’T:
1. Apply for too many credit accounts at once: Every time you apply for a new line of credit, a hard inquiry is made on your credit report. Too many inquiries can lower your credit score, so be strategic about when and where you apply for credit.
2. Close old accounts: Closing old accounts can negatively impact your credit score, as it shortens the length of your credit history. Instead, consider keeping old accounts open and using them occasionally to keep them active.
3. Max out your credit cards: Maxing out your credit cards can hurt your credit score. Aim to keep your balances low and pay off your credit cards in full each month to demonstrate responsible credit usage.
4. Co-sign for someone else: Co-signing for someone else’s loan or credit card can put your credit score at risk if they fail to make payments. Think carefully before agreeing to be a co-signer, as it can have long-term consequences for your credit.
5. Ignore your credit report: Ignoring your credit report can lead to missed opportunities to build credit or catch errors that could be damaging your credit score. Stay on top of your credit report and address any issues promptly.
By following these dos and don’ts of building credit from scratch, you can start on the path to a strong credit history. With responsible credit usage and regular monitoring of your credit report, you can increase your chances of obtaining favorable financial products in the future.
