- Posted by NateKragness on October 8, 2009
If you have no credit history at all, you can build up your credit score within six to twelve months. Just follow these simple instructions, and remain disciplined throughout the process. As long as you are willing to invest time into improving your financial future, you will be able to continually enjoy the benefits that excellent credit provides for many years to come. If you're starting from a blank slate with your credit history, here's how to get started:
- Apply for two credit cards that you are confident you will be accepted for. Generally, having no credit is not a bad thing, and lenders seem happy to extend credit to you. If you're a student, there are a few special student cards that you are almost guaranteed to be approved for. If all else fails, you can try a secured credit card (you deposit an amount, say $100, and the credit card company extends $100 of credit to you. After a few months, you may be able to get your deposit back as you show good payment history. Even though you have to deposit money to get credit, this still counts as a credit account on your file, and it will build your credit. It works well if you have the money up front.
- The reason you only want to apply for two credit cards is that each time you apply for credit, it counts as an inquiry on your credit report. If you have too many of these in a short period of time, credit agencies view it as risky behavior, and it hurts your credit score. Ideally, you will have two new credit cards, and only two inquiries on your credit report. Inquiries last for two years, so it's important to use them sparingly. However, the most important thing is that you have two credit cards; do what it takes to get two credit card approvals, even if it takes an extra credit application or two. I generally apply online, since you can usually see your approval status within a few minutes; this can really help to minimize credit inquiries in your file. Since inquiries hurt your score, you shouldn't apply for new credit unless you really need it.
- Once you have two credit cards, the strategy is to make small purchases on both cards, and pay them off every month. You only want to use a small portion of the credit given to you, so if your limit is $500, keep your monthly balance in the $150 or less range. The idea is to charge a little each month on both credit cards, and then pay the entire amounts off when they're due due. Since you are paying the full balance each and every month, you won't ever owe any interest. However, the credit card companies will report your good payment history every month, and your credit score will continue to rise. Just make sure that you charge something to both of your cards every month, and make the payments on time each and every month.
- You can check your credit reports once per year, free of charge, at https://www.annualcreditreport.com/ -- this won't give you your credit score (you can pay extra if you want to see), but you can ensure that your credit history is being accurately reported. There are three credit reporting agencies, so you can either check all three at once, or spread them each out over the year. In the early stages of your credit development, you might find it helpful to check one every four months. Since the agencies report almost identical data, you'll be able to accurately see your credit profile grow every four months.
- After 6-12 months, you will have established an excellent credit history, and will have many more options available to you. You can start to use rewards credit cards, which means you'll start to get a rebate for everything you purchase. If you're feeling entrepreneurial, your new credit score will be instrumental in applying for business loans, and if you're looking to buy a residence, you should even be able to qualify for a mortgage. Not only will having excellent credit open up these financial opportunities to you, but also note that some employers consider your credit history when making hiring decisions. This means that you can even improve your ability to land a job, just by building and maintaining your credit.
There are many reasons to want to build credit, but always keep in mind that it is significantly more difficult to repair your credit than it is to just start off in the right direction. If you have no credit history at all, follow the above steps and you'll quickly build a solid financial foundation on which to base your future financial life upon.