How to Start Credit From Scratch

I'm a young guy still, being in my late 20's, and I'm still continuing to build up my credit. But when I was a teenager, I had better credit than majority of people my age, and still do to this day. Lots of my teenage peers were making poor decisions, and some just started really late so it's taken them awhile to learn how to build credit with no credit history. The key to having a perfect credit report, is to make sure you make all the best decisions you can at an early age, and continue to be organized about what you're doing and how you do it. So if you're just starting out and want to build some credit history fast, here are some of the steps you should take which can probably help.

Prepaid Card
The first thing you should do is to get a prepaid credit card if you don't quality for regular credit cards. Majority of people can get a prepaid card with no credit history or even bad credit history. How it works is basically like this: A credit card company such as Visa or Mastercard will give you a card, and you put money on that card by paying them at a retail location or by mailing in a payment or by other means. After you put money on the card, then you can activate the card and use it wherever they accept Visa or Mastercard (or whichever other company you go with). If you put $200 on the card, then you have $200 that you can spend (which is known as your Spending Limit). You can then buy $200 worth of merchandise with your card, before you reach the spending limit. Although these are often referred to as Prepaid Credit Cards, they act more like Debit, since you aren't actually borrowing money from anyone. So they may also be referred to as prepaid debit cards or prepaid gift cards. Each time you use the card, you are slowly building up credit history. After you've used it for awhile, you will probably then have enough credit history to apply for a real credit card (and this will be easiest by going through whichever company issued the prepaid card to you, since they are already familiar with you.)

Regular Credit Card
Once you get approved for a real credit card, you should use it to buy everything you would normally buy with cash, even if you have the cash with you. This will help build your credit up even more. As long as you pay it off quickly, it will improve your credit history and won't cost you any big fees. Credit card companies usually hike on lots of fees after you're late paying or after a year or so of owing something. What I would do, is if I had $50 cash in my pocket to buy a toaster oven, I would use my credit card instead. Then, before a month had passed, I would make a payment to the credit card company for the $50 and pay them what I charged. This way I built up a little credit, but paid it off quickly as well. Credit Cards usually have a limit as to how much you can charge to them, and the limit will probably be a small amount when it's your first real card. It will probably be less than $3,000. If you have cash and want to buy more expensive things with higher price tags, you should put the excess amount left over on your prepaid card and pay the rest with that.

Auto Loans
After you've built up a decent credit history with your card, you should probably start thinking about taking out loans, as long as you're sure you can pay them back quickly. Auto loans are usually easier to get than personal loans, and they also have less fees and interest tacked on. So if you're thinking about buying a car or boat or something big, and you have the cash for it, then you may want to take out a car loan from a reputable credit union or bank. For example, one year I saved up $12,000 for a used car that I really wanted. Once I had the money, I took out an auto loan for $6,000. I used the loan to pay for half of the car purchase, and used $6,000 cash to pay for the other half. I would have asked for the full $12,000 from the credit union, but I doubt they would have given me that much with it being my first auto loan. So after I received the loan and bought the car, I then took the remaining $6,000 in cash that I had and paid the entire loan off immediately. It cost a little money in fees, but it was worth it to get some solid credit. Now there was a record of me borrowing 6 grand and paying it back quickly. This significantly boosted my credit score. Some people may choose to finance through car dealerships instead of going through financial institutions. This is not such a great idea, because it will not help your credit history quite as much, plus their fees and interest can be a lot compared to banks and credit unions.

Personal Loans
Once you've been able to receive auto loans, you may want to think about taking out a personal loan, and using the same methods of paying it back quickly. The only problem with personal loans, is that credit unions and banks usually charge higher fees and interest for these types in comparison to auto loans. So you may want to skip this step, but when it comes to credit score, it's probably good to diversify and build up lots of different types of credit. In my case, I had already taken out a $6,000 auto loan, and now decided to apply for a $2,500 personal loan through the same credit union. Again, I already had the $2,500 in cash, but wanted to build up a credit portfolio, so this is why I did it. I immediately paid off the loan and my credit history now showed that I was able to take out personal loans and pay them back quickly.

Larger Line of Credit
Now that you've been using your credit card a lot and taking out various loans, your credit score should be much better than when you first began. Because of this, credit card companies will probably be willing to give you more credit. As soon as you can extend your line of credit, you should do so. There are different types of credit cards out there, but I'm sure you've heard of the words "gold" and "platinum" to describe various cards. This is because Gold cards usually have a smaller credit line than Platinum cards. So once you're able to move up to a credit card with more credit on it, such as a Platinum card, you should definitely consider it as this will immensely help your credit score. People will be more willing to loan you large amounts of money or credit, once they see that credit card companies trust you with a large line of credit. If you have a business, you may be able to get a corporate card. However, this may not be the best idea because then if you have problems paying and can't file bankruptcy, your creditors will go after your company first since it will be more obvious to them.





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