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25 Oct

How to Build Your Credit Score From Scratch

How to Build Your Credit Score From Scratch

Your credit score is a representation of the quantity and quality of experience you have in using credit – kind of like a resume for your credit history.

However, many young adults are realizing they don’t even have a credit score at all, which can have a major impact when they try to apply for a mortgage, auto loan, credit card, new apartment, or even a checking account.

Lenders need documented proof that you are reliable, that you can be trusted to make payments on time and in full. When you have zero credit history, you’re a liability. So, you have to work to build your credit score from scratch.

How to Build Your Credit Score From Scratch

Building a good credit score takes time, and you won’t reach your ideal score right off the bat. First, you have to start working from the ground up to build your credit from scratch.

1. Talk to a trusted financial adviser about opening your first credit card.

Ask about the pros and cons of opening a secured card. Secured cards are backed by funds you deposit up front and receive back when you close the account. They are not meant to be used forever and are geared toward helping those with little, no, or poor credit history improve their track record.

2. Begin using the card responsibly.

Purchase small items regularly and pay off the bill every single month to keep interest at a minimum. Don’t get behind on payments, as that will hurt your score. Use your card to prove you can handle using credit wisely and make payments consistently.

3. Know what factors make up your credit score.

And be intentional about improving those five areas. They are payment history, credit utilization, length of credit history, types of credit, and new credit.

4. Keep utilization below the recommended 30%.

This means, if you have a $1,000 credit limit on your card, keep your balance below $300. Better yet, pay off your balance every single month and keep it at $0!

5. Stay consistent.

Building credit doesn’t happen fast – it takes small steps forward, one payment after another. It can take a year or more of consistent steps to reach a good score, even longer to reach a score above 750. Stay consistent and persistent, knowing that your credit score will continue to improve as you continue to take small steps forward.

Have questions on building a great credit score or want to talk with one of our trusted financial guides? Give us a call and reach out to a loan officer today!