How To Build A Solid Credit Rating From Scratch

Building a credit rating from scratch is not as difficult as one might think. You can establish credit in as little as three months and have a solid rating in one year. From that point, if you maintain proper borrowing habits, you can have an impeccable rating for the rest of your life.

white card written HOW TO BUILD GOOD CREDIT with calculator, a pen, coins and fake money

The key is to have a basic understanding of what actions affect your rating. You also need to follow a basic strategy design to keep you within the limitations of those influences. If you are starting from scratch, here is an easy to follow guide to establishing your credit

Check Your Report

While it may seem ironic, even if you know for a fact that you have never had credit before, checking your history is the first step. Your report contains more than just credit accounts on it and may have inaccuracies pertaining to other areas. I had a $500 phone bill attached to my report of which I had nothing to do with. In fact, it was tried to a business I worked for but had no ownership in nor any ownership responsibilities.

While it is rare, you may be surprised to find out that someone else has been using your good name. With the expansion of the internet, this occurrence is not as rare as it use to be. Regardless, it is good to know for sure what you are dealing with. To learn where you can check your report for free check out our article here.

Dispute Errors in Your Report

If you found no errors on your report then you can move on to the next step. If you did find a discrepancy, you will have to have them removed from your report.

It is very important that you take the time to have this inaccurate information removed. It may be frustrating, but errors left on your record will cost you a lot of money. The healthiness of your report is what lenders base the interest rate they will charge you.

This can literally cost you thousands of dollars in interest over the years. It will drive your monthly payments up for the same amount of money borrowed or charged.

Secure Personal Credit

Once you have resolved any errors on your credit report, it is time to start building your credit. The fact that you are not established as of yet will be a factor in where you should apply.

Rather than applying for a standard card, start with accounts that are tailored to meet a specific need. Applying for a standard card before your rating supports the requirement can place unnecessary negative marks on your report. Each time you apply for credit and are turned down it is recorded negatively on your report and lowers your already low score.

Your first attempt at securing credit should be a gas card, a department store card, or a secured (pre-paid) card. These cards are specifically designed for the purpose of offering credit for those with a low rating, or for someone who has yet to establish themselves. It must be pointed out that you can expect to pay a higher interest as the risk is higher for the issuer.

In today’s boom, there are several quality guaranteed approved cards available for you to establish yourself with. Each make monthly reports to the reporting agencies which assists in improving your credit score. If you make your payments on time, your will see your score start to climb. After around a year, your score will climb to a high enough level where you can apply for a standard card with normal interest rates. Remember, it is best to seek out offers than to respond to those which come in the mail.


Begin to use Your Card

Once you have obtained a credit card, you need to use it regularly and pay the balance off in full each month.

You should never use your new card instead of cash, especially while you are trying to build your credit. Instead, your goal should be to use your card to cover an expense that you normally pay cash for, like gasoline or perhaps your noon meal. Instead of spending the cash, save it and use it to pay your charges in full at the end of the month.

Be responsible with your card and you will realize your score is rising each month. The higher the credit score, the lower your interest will be on the next card you apply for. Your odds for approval will increase drastically, to mention your borrowing power.

Review Your Progress at Least Quarterly

After you have used your card responsibly for 3 months, check on your credit progress. Providing you have been responsible you will notice your score has increased. Check to insure that all of your payments are being reported accurately. If you find and errors, now is the time to take action to correct them. Monitoring your report regularly allows you to detect possible credit fraud in its early stages as well.

Increasing Your Limit

As previously discussed, once your credit score reaches various levels and you have proven yourself to be a good risk you will be flooded with numerous pre-approved offers. These offers are not always in your best interest with many bordering on predatory lending. While it is your objective to increase your limit to a comfortable level, it is best to do the research yourself. Building credit from scratch is not complicated, but it does take time.

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