Building credit is both a mystery and transparent. It is transparent as could be to people who have a good credit score, but a mystery to young adults who are just entering the dangerous waters of loan obligations. Here are five tips to help build a credit score from scratch.
- Get a credit card. Apply for two, maybe three at most. If you happen to get denied, then look a a secured or pre-paid card that reports to the credit agencies. Be sure to ask during the application process.
- Use your card wisely. A credit card is a double edged sword to be sure. Never charge your limit. Never miss a payment. Always pay more than the minimum payment. Pay in full each month if possible. If you carry a balance, keep it under 30% of your limit.
- Another form of credit. After having the credit card for six months, buy a used car. Something small, say in the ten grand or less range. A second line of credit that is not a credit card will build your score.
- Pay all bills on time. You may think that being late on your cable or utility bill is no big deal, but it is dangerous territory. One slip that leads to collection is a major hurdle to overcome.
- Do not close credit accounts. The longer an account is open the more it raises your credit score. Closing an account can actually lower your credit score because instantly raises the percentage of debt capacity you are using. It does not make sense to anyone that does not run a credit bureau.
Obtaining your first line of credit is fairly easy today. The hardest part is keeping that credit in good standing. After all, you don’t want to be stuck with low credit score auto loans your whole life, right? Always remember that what you do with your first credit card will affect your ability to obtain credit the remainder of your life. Credit is not something to take lightly.