Building credit from scratch may seem like a daunting task. However, this does not have to be a difficult task. The good news is that there are several things that you can do in order to build your credit.
Check Your Credit
Before you start working on your credit, you will need to take a look at your credit report. Make sure that everything on your credit report is correct. It is estimated that 25 percent of credit reports have errors on them.
Get a Secured Credit Card
One of the best things that you can do to build credit from scratch is to get a secured credit card. A secured credit card is one that is backed by the cash that you deposit on it. Your credit limit will typically be whatever the deposit is. For example, if you make a $500 deposit, then you will be able to get a $500 limit.
A secured credit card will work just like a regular credit card. However, these credit cards are not designed to be used forever. The goal should be to build your credit up enough to get an unsecured credit card.
Never Miss a Payment
It is estimated that 35 percent of your credit score is determined by your payment history. If you make payments on time, then your credit score will go up. One of the best things that you can do to make sure that all of your payments are made on time is to put them on autopay.
Build a Safety Net
An unexpected expense can ruin your credit. If something comes up unexpectedly, then you may have to max out your card. Maxing out your credit card can cause your credit score to drop by several points. That is why it is important for you to budget and build a safety net.
Get a Credit Builder Loan
A credit builder loan is a loan that is designed to help you boost your credit. You will pay a lender every month, and they will keep the money in a savings account. After you have made all of the required payments, the loans will be yours. Community banks and credit unions are the main ones that offer credit builder loans.
Use a Cosigner
You may have a harder time getting a loan if you do not have an established credit history. However, it will be a lot easier if you get a cosigner. The cosigner will be responsible for paying for the loan if you are unable to.
Get Credit for the Bills You Pay
Paying off your debts is not the only thing that you can do to improve your credit. You can improve your credit by paying your household bills. There are rent reporting services. Renttrack and Rental Kharma are companies that report your payments to the major credit bureaus.
You can also use Experian Boost. You can connect your bank accounts to your Experian account. Experian will report your phone and utility payments.
Keep Your Credit Utilization Low
Your credit utilization is the percentage of credit that you have used. For example, if you have a $3,000 credit limit and $1,000 balance, then your credit utilization is 30 percent. Experts recommend that you keep your credit utilization below 30 percent. If your credit utilization is low, then it shows that you are using your credit cards responsibly.
Constantly Monitor Your Credit
It is estimated that 66 percent of adults have not checked their credit report within the last year. It is a good idea to monitor your credit so that you can see how much it has improved.