Building credit from scratch might seem as an uphill task but essential in a world where paper money is losing meaning as everything goes cashless. A lack of credit history all but makes it hard for one to get a loan a credit from even the smallest credit companies.

Credit scores that most companies look at before forking out credit come into being on people operating accounts. The creditor, in this case, will have to report one’s activity to a credit bureau tasked with the responsibility of computing credit scores.

The big question remains, how can you show a history of repayment if you don’t have credit in the first place?

Build credit from scratch, hassle free, by following some of the tips articulated below. .

Building Credit From Scratch with Credit Cards

Credit cards provide one of the simplest and easiest ways to build credit from scratch especially if new to the world of borrowing through credit cards.

For people still in school, a student credit card could come in handy as they are easy to apply and come with favorable terms. Student credit cards are ideal for young cardholders who may wish to build credit early on.

What makes this cards stand out is the fact that they come with promotional offers as well as rewards that supplement one’s borrowing limit. However, they do come with lower credit limits as well as higher interest rates that one will have to consider, before signing up.

Secured credit cards are ideal for people with little or no credit and just getting started. For any approval, in this case, one must make some cash deposit that varies from one company to another. The cash deposit acts as collateral.

Secure Credit cards without an annual fee are the best as they provide a way for one to build credit with a responsible use case.

Store credit cards can also come in handy when one is building credit from scratch. The fact that one is sure to shop, from time to time, means one can build a credible credit history with timely payments. Borrowing and paying off any amount on a store credit card is the way to go as it will prove one has the capacity and ability to handle money responsibly.

Bottom Line

While using either a student credit card, secure credit card or Store credit card one ought to make sure that the credit provider reports their financial activities to all the major credit bureaus. This is the only way one can rest assured that their credit activity reaches relevant authorities to build credit history as a way of building credit from scratch.

Given that secured credit cards can be expensive, they are not meant to be used forever. Their purpose is to build a solid credit history that would qualify one for an affordable unsecured credit card.

Building Credit From Scratch with the Help of Parents

For young people who have never handled a credit card in their life and are finding it hard to acquire the best terms, then leveraging parent’s credit history would be an ideal play. Parents are allowed to make their kids authorized the user in their credit cards.

While signed up as an authorized user you will be able to rack up credit card scores as well as history as you use a credit card of which the parents are responsible for making payment. Any missed payments, on the other hand, would hurt both of your credit scores.

You will also need to come to an agreement on how the card is to be used as an authorized user. If the primary cardholder expects you to make all the payments, then do so in a timely manner even if you are not obligated to do so.

In addition to being made an authorized user on a credit card, one can also build credit from scratch by allowing a parent or somebody to co-sign for a card they are applying for. In case the person who is co-signing has good credit, one would be eligible for a good credit depending on the company with which they are applying credit with.

However, unlike when one is an authorized-user, in this case both of you would be responsible for loan repayment.

Build Credit from Scratch With Credit-Builder Loan

Credit Builder-loans were put in place to help people build credit from scratch with ease. Such types of loans don’t require good credit for approval. Instead, they provide a way for one to build a credit history while relying on payments they make.

In this case, one can borrow some money which is held by the lender in an account. The amount can only be released upon the borrower making full payment of the amount borrowed. Any payment activity, prior to the releasing of the amount borrowed, is reported to credit bureaus thus helping in the building of one’s credit history. Credit Builder Loans in this case act as forced savings programs.

While considering the Credit Builder loan route, it would be wise to go with one with a manageable payment level. Stretching one’s budget just to make a higher payment won’t cut it, instead go with low payment requirements and a term no longer than 24 months.

Payments on Credit Builder loans must be made on time, as that is the only way a financial institution would be able to send a good report to the credit bureau. To make payments timely, it would be crucial to develop good financial habits and living within one’s means to have some money on the side for paying off any debt.

Credit unions or community banks are some of the best when it comes to offering credit builder Loans.

Build Credit with Rental Payments

If you are a tenant who makes rental payments on a monthly basis, then you can use the opportunity to build a credit history if you have none. There are rent-reporting agencies that report to all the major credit bureaus rental payments.

In this case, rental payments made on a timely manner and consistently would go a long way in building a credit history when reported to credit bureaus. While not every credit score takes rental payments into account, those that do would come in handy in helping one build credit history that credit card companies can look at.

Conclusion

If you are just getting started in building credit from, there are many options that would fit any financial position. Above are just but a few tactics used by people building credit from scratch. Building credit takes time, at least six months that credit bureaus use to analyze once borrowing and payment patterns.

While in the initial stages, the most important thing to do is making payments on time, 100%. Bills that go unpaid with secured credit cards, student credit card and when one is an authorized user can hurt once scores significantly thus straining the path to building a solid credit history.

When getting started, it is also essential to avoid the urge of opening too many accounts at once. Too many accounts lower one’s average account age something that hurts credit scores. Damaging credit scores is much easier than fixing it, thus the reason to be careful while starting from scratch.

By using the tips listed above, you should be on your way to building a credit history that any credit company would be excited about and open to offering any amount of credit line.

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