Building Credit: Starting From Zero
Credit scores don’t start at zero, however, they may not start as high as you would like with zero credit history. There are good behaviors that will help you build your credit score, no matter where you are starting from. There are also some bad behaviors that won’t hurt you, but will prevent you from increasing your score.
The good behaviors start with Mom and Dad. Parents can add their children as authorized users on their existing credit cards. The child won’t get their hands on a card, but it will give them a higher starting score when they eventually move out and start on their own. Also remember, when your child leaves for college, student loans, big or small, report to the bureaus. Loans will report even while they are being deferred. This will continue to build your child’s credit score.
Not to worry if your child decides not to go to college. They can get a basic car note to start the credit building process; however, anyone who has zero credit history can apply for a secured credit card. This good behavior is the easiest way to build credit. It only requires a few hundred dollars and some patience as the unsecured card can take up to six months to report to the bureaus.
After six to twelve months of responsible use, your credit should be good enough to get an unsecured credit card. The goal of establishing credit is to get the highest possible credit score so when you do borrow money, you get the best possible interest rates and terms on your loan.
Some behaviors to avoid are believing you do not need credit. This should be obvious, but not having credit prevents your credit score from growing. Another behavior to avoid is paying cash for everything. While cash is king and you shouldn’t buy what you cannot pay for, placing your monthly utilities on a credit card and paying them off is an easy way to build your credit.
The last credit building behavior to avoid is closing revolving credit card lines. This does not help boost your score, but can hurt your score as the bureaus like to see a long established credit history. In the FICO model, credit history can make up fifteen percent of the overall score. These are just some of the key behaviors that can help you and prevent you from growing your credit score.