Building Credit from Scratch: All You Should Know!

You have landed your first job. After the first month’s salary, you receive an email offering a credit card. Now, you start Googling and learn about credit scores. Let’s understand how to Building Credit from Scratch?

If that’s your story, you’ve landed on the right page. 

Building credit for the first time may seem like a tall claim. But don’t be worried. Take a leap of faith and make your first credit transaction. 

There are a thousand and one ways to build good credit for beginners. But let me help you with the best tricks to build an enviable credit score. 

A Good Credit Score is Essential in the US

Brittany Brown once said- “America Runs on Credit,” and that’s quite appropriate.

But poor credit handling got has gripped most Americans. Around 83% of the US people indulge in overspending¹. Managing Existing Credit is challenging for them. What’s worse is that 39% of citizens carry debts, month after month².

You may avoid these pitfalls with the proper knowledge of Building Credit from Scratch. 

Why is Building Credit Such a Big Deal?

Credit is the cornerstone of every American’s finance. So, having a high credit score is paramount. 

Building Credit from Scratch?

The first step is building a flawless credit history. For the same, you may:

• Open a new account initially
• Then, sync your name with parent’s or siblings’ accounts 
• Or apply for a loan
• Get a credit card if nothing else works

Meanwhile, any action you take will be recorded with the credit bureau. 

The three credit bureaus in the US are Equifax, TransUnion, and Experian. 

Poor Credit Can Be a Snag

Building Credit from Scratch? Certainly, you are prone to errors. 

But avoid being reckless. Most companies check your credit score before granting loans, credit lines, or credit cards. 

Your creditworthiness will fall badly if you have a tainted credit history since inception. Hence, banks hesitate to give credit to first timers. When there’s no credit history against your name, banks consider it risky to lend to you.  Foremostly, they can’t trust your Payment Habits.

Luckily, I know the means that you may use to bid adieu to such problems once and for all. Keep reading to know the best ways of Building Credit from Scratch.

Ways to Build a Solid Credit History

Average Americans get their first credit cards before they turn 20. So, it’s only natural that you’ve felt that you need one too. 

But make sure to let the challenges of building credit bother you. Here are some tips for creating a credit history with a good Credit Mix that banks consider ideal.

Grab a Secured Credit Card

You may easily qualify for a secure credit card. It’s also the best option for people building Credit from Scratch. 

To apply for a secure credit card, you must make a threshold deposit of $200³. That’s all.

However, your credit limit will be the same as well. So, your deposit acts as a warranty against the credit offered. 

Once you get a credit card, keep track of your credit score changes. Register with Credit Monitoring Services if you want. These agencies send you real time notifications of changes in credit score.

Bank of America has the most accessible options for applying for a secured credit card. Hence, it’s the best option, if you are rebuilding credit. However, Discover it® Secured Credit Card provides more benefits to cardholders. To sum up, the main requirements for getting a secure credit card are mentioned below.

Minimum deposit needed: $ 200

Minimum age requirement: 18 years 

MAB: Not needed

College Credit Cards-a More Flexible Option

College students can apply for student credit cards in the US. Discover, BOA, Grow, and others issue college credit cards . Like secured credit cards, college cards have low limits. 

However, two additional conditions apply here. 

Primarily, you would require a valid student enrollment ID. At the same time, a guarantor must pledge to act as collateral if you fail to pay back.  The guarantor acts as a key component to the students’ Debt Management Strategies.

The fundamentals about college credit cards are listed here:

Credit Limit: Less than $1000

Minimum credentials: Valid student ID and confirmation from registered institutions 

Minimum age: 18 years 

Credit Points Against Bill Payment

Register with good credit reporting services. They also help you list all utility bill payments in your credit reports. 

Bill payments are redundant as credit repayment actions for some credit scores. However, a few credit reporting agencies consider it.  In some cases, they are as important as your Credit Utilization Ratio.

even if a handful of agencies report your credit history, you might be eligible for a loan or credit card,  

I recommend trying Experian Boost. This platform ensures that utility bill payments are counted in the credit report. 

Authorized User of a Credit Card

Caught in the crux of the term?

But let me tell you, there can be more than one authorized credit card user. You may be an authorized user, even if the card doesn’t belong to you. 

The prime user is the cardholder. However, there’s no bar on you becoming the secondary or authorized user. 

However, there’s a catch. All card issuers don’t take authorized user activities into notice separately. 

Cards Against S/B Cash Flow

In the US, you can get a cash flow underwritten credit card. It’s the most viable option for people Building Credit from Scratch. 

In this context, the bank presumes you don’t have a credit history. So, your S/B account cash flow is considered a parameter of your creditworthiness. 

After applying for an underwritten card, you must wait for the bank’s scrutiny. Meanwhile, the bank will explore your financial behavior and earning potential.  Whether you qualify for an underwritten card depends on the following factor.

(Source: https://plaid.com/resources/lending/cash-flow-underwriting/) 

Exploring Loans for Beginners 

If try applying for a loan if you find Building Credit from Scratch difficult.   

There are several occasions when taking out a loan. You may have a large purchase ahead. Or a significant investment like enrolling in an educational course.   

I otherwise advise against borrowing solely to build a credit score. However, there’s no denying that it is a plausible option.   

If you keep credit cards out of the picture, taking a loan is the most valid credit-building option.   

Here are some loan options I find suitable for those Building Credit from Scratch.   

Student Loans

In the US, getting a federal student credit loan is relatively easy. Undergraduates may get up to $57500 in credit from federal institutions⁴. However, more than 50% of the loan shouldn’t be subsidized.   

Only private loan companies require credit history for student loans. Federal bodies don’t have such requirements.  However, it is an excellent way for first-timers to build credit.   

Equifax newsletters confirm that student loans are reported to credit bureaus.   

Loans Dedicated to Credit Building

Banks and NBFCs offer credit-building loans to people with poor credit scores. It is an opportunity to rebuild creditworthiness. However, people who build credit from Scratch may also use this opportunity.   

These loans work the same way as secured credit cards. The lender will hold onto a security deposit.   

However, you must wait to use the loan amount. Remember, the loan is only to help you build your creditworthiness.   

So, the funds will be accumulated in a separate savings account. You will access them as you pay off the loan.   

To help you build your credit score, the lender will forward monthly repayment status to credit bureaus.   

Caution: Credit builder loans require an application fee. The loan also attracts interest over the basic.   

Pro Credit Building Tips Banks Don’t Want You to Know 

I created a repository of expert tips for Building Credit from Scratch. More than anything, credit hygiene can help you put up a piling credit score.   

Let us now learn about good credit-using habits.   

Key Takeaways 

The bottom line to Building Credit from Scratch is:  

• Secure credit cards are the easiest options to Build Credit from Scratch  

• Simple gestures like using Experian Boost to pay monthly utility bills can help build a credit history  

• First-timers easily qualify for a credit builder loan  

• Please avoid using more than 30% of your available credit limit   

Conclusion 

Building Credit from Scratch is something that takes time to happen. It requires time and a steady strategy.   

I urge you to recognize the main financial stressors you experience regularly.  Thus, you can build your budget and maintain credit hygiene, too.   

If your financial needs are more significant, plan early. I recommend using the means discussed here only to build your credit score.   

At the end of the day, financial hygiene depends on the individual. However, creating a credit score for the time becomes easier with the tips I shared.   

Comment below if you have further doubts about Building Credit from Scratch.

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1. https://www.altoonamirror.com/news/national-news-apwire/2024/06/nearly-75-of-americans-have-spending-problems/ ↩︎
2. https://abcnews.go.com/US/credit-card-users-avoid-mounting-debt-bills-reach/story?id=106479070 ↩︎
3. https://www.bankofamerica.com/credit-cards/products/secured-credit-card/ ↩︎
4. https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized ↩︎
5. https://www.cnbc.com/2019/08/20/why-that-30percent-rule-of-thumb-about-credit-card-use-could-be-costing-you.html ↩︎