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People with No Credit: 5 Tips on How to Establish It

If you are just starting out on building your credit, you want to be smart about building good credit from the beginning. Too many people rush into the world of credit and don’t stop to think about how their actions will affect their credit score and ability to qualify for credit in the future. So here are 5 tips to help you get started on the right foot:

1. Open a revolving credit account. This means applying for a credit card at a major credit company, such as Visa, MasterCard, or Discover. When you get your card, use it. If you would normally pay cash for twenty dollars in groceries, use your credit card. Then deposit that twenty-dollar bill into your checking account and immediately write a check to the credit card company for the bill you will receive that month. You will establish a good payment history very quickly this way.

2. If you have a high credit limit, use at least a third of it. Another aspect of your credit score is the ratio of credit used to your available credit. So if you have six hundred dollars in credit limit at Visa, spend two hundred dollars and pay this off promptly.

3. Always pay on time. Again, if you can pay your credit card bills as you use your card, you will avoid forgetting to pay at the end of the month. Avoid paying late, even if you are willing to pay the late fee. This late payment will show up on your credit report and lower your credit score.

4. Avoid applying for a lot of credit. When companies run your credit to see if you qualify for a credit card or a loan, this inquiry is recorded in your report for the next two years. These types of hard credit inquiries can lower your credit score. So pick what card you want and apply for it, then stop.

5. Finally, always pay your other bills on time. Utility companies, landlords, and medical billing agencies often report your payment history to credit bureaus. Get in the habit of being prompt.