Starting from Zero: Effective Ways to Build Credit When You Have No History

Your three digit FICO score is arguably the most important number in your financial life, but it takes time and effort to get it to a good level. When you are starting from zero, building up that stellar credit score can seem like an insurmountable task, but there are steps you can take to help the process along.

Whether you are a young college graduate just starting out or an older adult who never prioritized building a credit history, taking a few simple actions can put you on the road to great credit. If you want to go from zero to great credit, start by doing these things.

Become an Authorized User

Do you know someone with great credit? If so, becoming an authorized user on their account could help you establish a credit history of your own. Even if you rarely use those authorized user privileges, just being on the account should give your score a boost.

You can build your own stellar credit even faster by using the account responsibly and paying off the balance in full and on time. You can think of this approach as training wheels for your credit. Once you learn how to use the account wisely, you will be ready to solo.

Sign Up for a Secured Credit Card

Signing up for a secured credit card is another excellent way to build credit while avoiding the risk of long-term debt. With a secured credit card, your spending is automatically controlled, giving you a safe way to use credit and build up a solid history.

When you apply for a secured credit card, you are essentially opening a bank account, one whose balance is directly tied to your credit limit. Spending a small amount each month and paying it back on time is an excellent way to build up a credit history, and once that history is established you should be able to qualify for a traditional credit card.

Take Out a Small Loan

It may seem silly to take out a loan when you do not need the money, but not if you are starting from zero in your credit profile. Taking out a small loan and paying it back over time is one of the most effective ways to build credit, especially for those just starting out.

By keeping the amount small, you can minimize the amount of interest you have to pay, so you can build credit at an affordable cost. It is best to work with the bank where you have your checking or savings account; the existing relationship will make getting approved easier.

Automate Your Bill Payments

Building up a history of on-time payments is the only foolproof way to create great credit, and a single misstep could undue months of hard work. To make sure you do not miss a payment, put the process on automatic.

Paying your credit card bills from your bank account by setting up automatic payments can be a great way to build a stellar credit score over time. You will need to monitor your spending carefully and make sure there are sufficient funds in your bank account, but if you can do those things, automating your payments could be a smart move.

Keep Your Credit Use Low

Credit utilization is one of the factors in your FICO score, so it pays to keep your credit usage low. Credit utilization is defined as the amount of available credit currently in use, i.e. a balance of $2,000 on a $10,000 credit limit is a credit utilization rate of 20%.

There are other reasons to keep your credit utilization low, including making it easier to pay off your balances and avoiding interest and other charges. By keeping your use of credit to a minimum, you can build a solid history without going into debt.

Building a great credit score from the ground up can be tough, but the sooner you start the sooner you can get it done. The tips listed above can help you go from zero to great credit more quickly than you ever imagined.