Have you paid your bills on time and have never had a credit card or a loan of any kind? Congratulations! You’ve been financially responsible. The problem is you have no credit history. And if you have no credit history, you may have a tough time getting credit when you finally decide you want it. While there are things you can do to begin building a credit history, financing something inexpensive isn’t one of them.
Get a secured credit card
If you’re not familiar with secured credit cards this is where you put down a security deposit, usually in the neighborhood of $300 to $500. This guarantees your creditors that you will pay back any money you borrow. As a general rule, the card’s limit will be the same as its security deposit. A secured card is better for building credit than a debit card because your creditors will report the way in which you use the card to the three credit reporting bureaus. If you use your secured card responsibly, this will have a positive impact on your credit report and score.
Never spend more than you have
When it comes to building credit, you need to demonstrate that you’ll pay back any money your borrow responsibly and consistently. In fact, the amount you borrow isn’t as important as your payment history. Pay your debt on time and you will start building credit. And don’t charge any purchases unless you know you can pay for them at the end of the month.
Always pay on time
Pay off your bills on time every month without fail. If you’re late making just one payment, your payment history will be severely damaged. Pay on time every month with no exceptions.
Apply for just one or two credit cards
Your credit score takes a small hit every time you apply for a credit card or a loan. You can recover from a few of these hits when you do need to get a new card or a loan but if you apply for new cards repeatedly, these small hits can grow into a major dent.
Keep track of your credit score
Once you have a secured card for at least six months and have been purchasing items and paying for them promptly, you need to start monitoring your credit score and credit report. This won’t effect your credit score so you can check it as often as you like. While you can’t get your credit score free, you can get it sort of free by going to the site, www.myfico.com and signing up for a free trial of its Score Watch program. Or you may be able to get it free from one of the three credit reporting bureaus (TransUnion, Experian and Equifax) though the score you will get from them won’t by the same as your FICO score as all three have their own formulas for calculating credit scores.
Get an unsecured credit card
After you’ve spent 12 months making payments on time, you should have enough of a good credit history to get an unsecured credit card. But do be careful. Today’s credit cards come with a bewildering array of points and rewards all of which are designed to get you to charge more. Don’t fall for these promotions and again, never charge more than you can afford or that you can pay off at the end of each month. It takes time and patience to build a good credit history and your credit can be ruined if you owe too much from month to month or start skipping payments.