How To: Build Credit When You Have None

Of everything we learn in high school and even in college, if you’re not a business major, you don’t really know about credit. We all know that we need it to make big purchases, but how exactly do we build it and how do we build it without going into debt?

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If you are entering the adult world, like me, you will likely have heard about credit and want to build it on your own. Basically, credit is a type of loan which allows you to pay smaller installments of an item or even buy items in advance and then pay it off at another time.

The biggest thing to know is that your score goes hand in hand with your credit because it is a measurement taken by your potential loaners which will determine whether or not you are eligible for a loan or whether you are likely to pay it back, so keeping your score high is ideal.

Your credit score is based on your credit history, and is calculated when you take out a loan and pay it back. It shows how reliable and trustworthy you are as a payer. However, what happens when you have no credit?

If you have never had credit before, your score will be zero. This is not a reflection on you, it is a simple fact that you have never taken out a loan before so you cannot be scored, so how do you create it?

If you want to create a history you need to open some type of credit. Start off by opening credit cards to build credit with no credit, (I know, that’s a mouthful) but then you can start paying small installments each month and make a reliable name for yourself. After you prove you are reliable, you can start to do a few more things to build your history.

Open a bank account

Most of us will already have a bank account from our teen years, and having a bank account really helps you maintain a good rating. The reason it helps is because if you always make sure you have enough money to cover your phone contract or other things each month, you will have a great way to prove you are reliable to brokers.

Set up a direct debit

Direct debits are a brilliant way to build up your credit score without you having to do a thing. For example if you have a membership to the gym or you have a phone contract, you can set up direct debit and this money will automatically come out of your account every month. It’s like an automatic bill pay. All you have to do is make sure that you always have enough money in your account to cover it. It is a simple way to build your credit passively without having to remember which days to make payments every month.

Never miss payments

The most important tip to remember, and perhaps the most obvious, is to never ever miss a payment. It is crucial that you always remember to pay off your debts each month because if you start to miss payments you will pull yourself down into a hole and struggle to get out. This will in turn cause you to fall deeper into debt and in the following months you will struggle more and more to pay off the higher payments. This will, in the end, put a downer on your credit score which you never want to happen. Always make sure to pay on time and you can avoid the hassle.

These are some small tips for all of us merging into the adult world, and it’s so important because you really cannot make any large purchases without credit.

Thanks so much for reading guys! What other ways have you built your own credit that has been beneficial to you?


Disclaimer: I am not a financial advisor, nor should any advice on this page be taken as professional advice. These are simply ways that have worked for me in the past. Please contact your financial advisor if you are seeking professional financial advice.

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