How to Build Credit From Scratch

How to Build Credit From Scratch

Whether you are someone with no credit history or someone looking to rebuild their credit score, following these tips here should help you generate that credit history you need and be on your way to better financial benefits and product options.

how to build credit from scratch

Your credit score or sometimes simply known as credit is a way for companies to gauge whether or not you are good enough to be approved for a purchase or loan.

This goes a long way for high-ticket expenses like a car, a house, or loans for setting up businesses.

Building your credit may sound overwhelming but it’s actually quite simple once you understand what you need to get started.

What’s trickier is trying to earn higher credit scores but hopefully, you’ll learn in this article in how to build credit from scratch.

What Is Credit Anyway?

Credit is an integral part of American financial institutions.

It is a trust that allows one party to borrow money to be used to pay for something else to another party.

Generally, the higher one’s credit score, the more trust is given to you that you will be able to pay back the money borrowed.

In the US, credit, credit score, or credit history is a report of how you have borrowed and paid back.

Whenever you open an account, get a loan or credit card, pay back debt or credit whether late or on time, that gets reported to major US consumer credit bureaus such Equifax, Experian, or TransUnion. 

The thing is many companies are usually unwilling to get into an agreement to give you a loan or a credit if you don’t have a credit history.

This is because there’s no way for them to gauge your capability to repay your loan or credit and so you are still deemed high risk.

So what you really need to do is learn how to build credit from scratch and once you have that, it becomes easier to actually apply for those credits or loans.

Ways to Build Credit Easily

Building credit can be as easy as one-two-three.

The following ways are the easiest and will help you get a high credit score and build a history that shows that you are a reliable borrower and payer. 

  • Apply and get a credit card
  • Become an authorized user on an existing credit card
  • Get a simple loan
  • Qualify your credit using credit from another country

Let’s take a look at each and how it can help you build that credit.

Get a Credit Card

how to build credit from scratch

Getting a credit card is actually pretty easy in the US.

Since it doesn’t require you to have a credit score to get one, you can easily apply for one and just submit the requirements to get access to one.

Once you do have a credit card, you just need to make sure to pay your balance regularly and don’t let it lapse the due date when making a payment.

There are tons of credit cards to apply for from regular credit cards to student cards.

Make sure to do your research and find one that doesn’t have an annual fee or waived the annual fee and doesn’t charge an interest rate when you pay the balance in full. 

If you are under 21 years old or you are having difficulty getting a card, you can have someone co-sign for the card.

This may make getting a card easier for you.

Explore what are the guidelines that credit card companies have for accepting new members.

You may also opt for a secured credit card that’s specifically designed for those who are new to credit or are rebuilding credit.

In those cases, you are often asked to pay a deposit to get a card, and then you can get your deposit when you close your account provided you don’t have a balance on the account. 

Become an Authorized User on a Credit Card

how to build credit from scratch

One of the other ways on how to build credit from scratch is by getting your name attached to an existing credit card as an authorized user.

Simply ask a family member or friend to ask your name to be added to the account as an authorized user.

Generally, you will then be sent a card of your own attached to that person’s credit card account as a supplementary card.

Once your name is on the card as an authorized user, you would actually get your name reported to the credit bureau along with the main user of the card.

However, not all card companies do this.

It’s best to check with the credit card company if they report the authorized user together with the main user to the credit bureaus.

You also have to take note that your credit history is now dependent on the credit history of the main credit cardholder.

If they pay regularly and in full, then their good credit score will also reflect on yours.

However, if they pay late or leave a balance always on the card, this will affect your credit score negatively.

Get a Loan and Pay It Regularly

how to build credit from scratch

 

One of the other ways to build credit is by getting a loan.

There are many loans that don’t actually require a credit history check.

Apply for those kinds of loans and then make sure that you regularly pay for the regular payments and don’t be late.

Student loans tend not to check on prior credit history so this can possibly be a good way for you to build credit.

There are also credit-building loans available.

These loans are designed specifically for building a loan.

Often the money is placed into a savings account that is used to pay for the monthly payments automatically.

Please take note that you may be charged an interest rate so make sure that the interest amount is also paid to ensure good credit.

So as long as you are regularly paying, your payments will be reported to credit bureaus and ensure you are able to get good credit history. 

This could possibly be one of the best ways how to build credit from scratch.

Qualify Based on Your Credit in Another Country

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If you lived in another country and built a credit history there before moving to the United States, then it might not actually be a complete waste. This could be a great way how to build credit from scratch.

There are international banks and companies that allow you to take your credit history from another country and use that when reporting to US credit bureaus for your activity.

Companies such as Nova Credit actually allows you to use the credit history from select countries when you are applying for financial products in the US.

Jasper, on the other hand, creates a card for any professionals who are moving to the US because of a job offer.

You can even apply for a card like that before your move to the US. 

Final Thoughts

Building credit can seem daunting at first, but as I said earlier, you can easily learn how to build credit from scratch.

Whether you are someone with no credit history or someone looking to rebuild their credit score, following these tips here should help you generate that credit history you need and be on your way to better financial benefits and product options.

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Author: John Benares

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