How to Build a Good Credit from Scratch
Establishing a good credit history has never been as important as it is today.
It’s not just that you’ll need good credit to get decent rates when you’re ready to buy a home or a car. Your credit history can determine whether you get a good job, a decent apartment or reasonable rates on insurance. It’s a classic Catch-22: You’ve got to have credit to get credit. So where do you start?
If you’re just starting out, you have a once-in-a-lifetime opportunity to build a credit history the right way.
Here’s what to do, and what to avoid.
Piggyback on someone else’ good credit
The fastest way to establish a credit history can be to “borrow another record, either by being added to a credit card as an “authorized or joint user or by getting someone to co-sign a loan for you.
Being added as an “authorized user has its risks,for you as well as the person giving you access to the card.
If your father makes you an authorized user of his credit card, for example, his history with that account can be imported to your credit bureau file, giving you an instant credit record. If he has handled the account well, that reflects well on you. But if he hasn’t, his mistakes would also become yours.
Even if you trust the person adding you to the card, you may not be able to piggyback on his or her credit. Some credit issuers won’t report authorized users to the credit bureaus, particularly if the user is not married to the original card holder. If the point is to give you a credit history, the person who adding you as an authorized user should call the issuer and ask how (or if) your status as a user will be reported.
Apply for a secured credit card
If you can’t get a regular credit card, apply for the secured version. These require you to deposit money with a lender; your credit limit is usually equal to the deposit.
Your credit union, if you have one, is a good place to start looking fora secured card. You can also check with the bank where you have your checking account. However, if the issuer doesn’t report to the credit bureaus, the card won’t help build your credit history.
Get an installment loan
To get the best credit score, you need a mix of different credit types including revolving accounts (credit cards, lines of credit) and installment accounts(auto loans, personal loans,mortgages). To get pre-approved for a California Mortgage click here.
Use revolving accounts lightly but regularly
For a credit score to be generated, you have to have had credit for at least six months, with at least one of your accounts updated in the past six months.
Using your cards regularly should ensure that your report is updated regularly. It also will keep the lender interested in you as a customer. If you get a credit card and never use it, the issuer could cancel the account.
Ultimately, experts say that it is best to have three to five credit cards, and no more than that. You should keep your balances as low as possible. If you have a credit account with a zero balance, do not close the account.
Instead, make a small purchase so the card shows up as an active account on your credit report, and you will be awarded points for your long-term credit history.
These are just a few tips to consider as you seek to obtain mortgage financing in California. Get a quick mortgage rate quote