Here’s how you can build your credit from scratch, fast
Because your credit score is more important than ever.
You’re at Target and a team member asks if you if you’re interested in signing up for the store credit card.
“You get 5 percent back with every purchase,” they tell you. You are enticed. You apply, but are promptly rejected.
A letter in the mail soon tells you that you weren’t approved because of a lack of credit history.
It’s a vicious cycle: you don’t have credit because you don’t have a credit card; you can’t get a credit card because you don’t have credit.
Read this article if you’re looking for reasons why you should build your credit history.
So how exactly do you build credit from scratch, as quickly as possible?
1. Apply for a credit card.
You never know until you try.
It helps to apply for one or two student credit cards. Student credit cards are usually a bit more lax when it comes to qualifying. This will give you a good idea of where your credit is at.
If you’re not in school, try applying for a credit card that doesn’t require excellent credit.
If you get a student credit card, great! Use it responsibly and your credit will build over time. If you apply for a few and are rejected, then move on to Step 2.
Whatever you do…don’t apply for a million credit cards in hope that one will accept your application. This can critically hurt your credit going forward, which may affect your overall score in the future.
If you get rejected by one or two cards, there’s a good chance you won’t get accepted by any of them.
2. If you don’t qualify for the credit card, get a secured credit card.
A credit card essentially lets you borrow money from the bank, which you are responsible for paying back. The bank gives you a credit limit, which is the amount you’re allowed to borrow from the bank.
So when your credit card application is rejected, the bank is essentially saying you’re too much of a risk to lend money to.
But what if you could tell the bank, “Put my money where your mouth is.”
Most banks offer a secured credit card. This means you put down a deposit, usually somewhere between $300 to $1,000. You get the deposit back when you close your credit card account.
The bank will issue you a secured credit card for the amount of your deposit. So, if you put $300 down, you’ll get a credit card with a $300 spending limit.
It’ll work like a normal credit card. You can use it for your everyday expenses. At the end of the month, you pay it off.
The downside is that some of these cards may require you to pay an annual fee or open a special account at the bank, which may incur an additional charge.
Also, secured credit cards usually have no rewards programs or incentives. So, unless you’re trying to build credit, a secured credit card is pretty lame.
3. Use your secured credit card for a few months, then get a normal credit card.
With a secured credit card, it can take as little as two months to qualify for an unsecured credit card. Sometimes, the bank will even “graduate” you to a normal credit card automatically, when it sees you’re creditworthy.
Once you qualify for an unsecured credit card, hold onto your secured credit card until you’re “graduated” or until you’re charged a fee for your unsecured account.
Usually you want to avoid closing out credit card accounts, as it hurts your credit score. But if you’re being charged for a card with minimal benefits, it’s worth closing out.
Like Moolah on Facebook for more advice on personal finance!
