6 Simple Tips for Newbies to Establish Stellar Credit

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What's the easiest way to build credit from scratch? Here are six straightforward tips to get you started.

Anyone new to the world of credit is probably looking to give their FICO score a boost. But how do you do it?

Fortunately, credit is not as mysterious as it might seem. If you are properly educated on how it works and manage your accounts responsibly, your credit score will rise. Here are some straightforward ways to establish stellar credit:

1. Start with your credit report

This is a simple step many consumers overlook. Even though you’re new to the world of credit, you might still have a file with the three major credit bureaus — especially if, for example, you are paying down student loans.

Credit reports sometimes contain inaccuracies, or they might alert you to fraudulent accounts taken out in your name as a result of identity theft.

To access a free copy of your profile, visit AnnualCreditReport.com. Carefully analyze the contents and dispute any inaccuracies. Check out “Should You Repair Your Own Credit?” to learn more.

2. Don’t fall for the first credit card offer you receive

Don’t waste money by signing up for a credit card with a big annual fee and an exorbitant interest rate. Instead, look for cards that reward you with cash back or points for spending money on things you normally buy.

Don’t apply for a lot of cards, because credit inquiries account for 10 percent of your FICO score. Excessive inquiries drive down your score.

Stuck with a shabby piece of plastic? Pay off the balance, but avoid closing the account, because that could also damage your credit score. Then, find a better card.

3. Work your way up

If you can’t get approved for a regular credit card, consider a secured credit card. But be prepared to make a cash deposit that will be equal to the low credit limit on the secured card. And read the fine print to confirm that the costs don’t outweigh the benefits.

As you establish a record of responsibly using your secured card, the company might offer you a regular credit card. Or you can apply for another credit card.

4. Make timely payments

Penalties — in the form of fees and a higher interest rate — aren’t the only result of delinquency. One late payment can send your credit score plummeting.

Credit card and loan issuers usually give you 30 days to bring your account current before reporting your late payment to the credit bureaus. Make it a habit of paying before the due date. Making on-time payments is a significant part of your credit score.

If you’re having a tough time keeping up, consider using a bill-pay service or automatic withdrawals. Or, set up payment reminders on your phone or another electronic device.

5. Keep balances low

The amount you owe accounts for 30 percent of your FICO score. Think about that before you swipe your card. Many experts recommend that you use no more than 20 percent of your credit limit.

This rule applies even if you pay off the balance each month. The credit bureaus remain interested in how much you charge.

Don’t turn to credit card cash advances. If you need money, consider these sources:

  • Tap your emergency fund.
  • Sell some idle goods lying around the house.
  • Cut the extras.
  • Pick up a side gig to generate extra income.

Your credit card is not an all-access pass to the ATM, and it shouldn’t be viewed as such. Cash advances come with a fee, a higher interest rate and no grace period.

6. Pay attention!

Remain vigilant about your credit card statements and credit reports. You can get one free report a year from each of the three major credit bureaus.

Know that this is not an overnight job. Establishing stellar credit takes time and patience. But if you practice responsible credit use, your efforts will be rewarded.

For more tips, check out “Answers to 10 Key Questions About Credit Cards.”

Do you have any tips for building up credit? Share your thoughts by commenting below or on our Facebook page.

Stacy Johnson

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