Gigi Simmons

1679 words - this article has previously been officially published and I retain all rights as original author of article. 5 Critical Step by Step Instructions to Build Your Credit Score from Zero Credit Short summary: Have you been told you don’t have a credit score? Were you told you needed to get credit before someone can give you a loan? These are 5 critical step by step instructions for establishing a good credit score. Are you thinking about buying a car, a home or something that requires you to obtain credit? Has someone pulled your credit and informed you that you don’t qualify? Have they told you that you don’t have any credit? What does this mean? Millennials today are choosing not to establish credit and not incur credit card debts. This method takes careful planning when you intend to pay cash for everything and haven’t established any credit accounts. There is a Catch-22 when a time comes and you want to establish credit. By never using a credit account, you have no established credit and a creditor is unwilling to extend credit to you with no established credit history. Don’t feel bad. Everyone is in this position at some point in time. If you have been making your purchases with cash, or you are unable to purchase the item because you don’t have enough cash to make the purchase, this is a time to learn how to establish your credit history. Steps to building a credit score: ● No credit score. Why do I need a credit score? ● What is a credit score used for? ● How do I establish credit? ● Steps to follow to establish new credit. ● How long will it take to get credit? A credit score is a way for creditors rate you according to the amount of credit you have. Credit is earned. Not only is credit earned, but as you are establishing and using credit for the first time, you are creating your credit score. An initial credit score under 500 is essentially no credit. Many lenders will not offer credit with less than a 520 credit score. And you ask, but how do I get credit if I have none? It’s the Catch-22 again. You can’t use your credit because you have no score, and creditors will not provide credit to you so that you can start building credit. It can be confusing as to how you are to go about fixing this. What should you do? How do you obtain credit if no one is allowing you purchase anything with no credit yet? How does this work? Do you really need the credit? What is a credit score used for? Here are some items you may want or need to purchase in the future that likely will require obtaining credit. ● ● ● ● ● ● ● ● ● ● ● ● House Car Furniture Rental apartment Department stores Large equipment like riding lawn mowers and refrigerators Cell phone Credit cards Rental cars Leasing equipment or cars Starting a company Making payments on something like Lasik vision surgery It’s not as bad as it seems and there is a method to gain credit. It may be challenging to purchase these items with cash on hand. How do I establish credit? Here we are back to the Catch-22, of how do you get credit if no one is willing to give you credit? Where to start? Who will give you new credit and how do you start earning credit? As mentioned before, almost everyone has to start from zero. You must start from zero and find a way to establish credit. But how and where do you start? There is actually a proven method to establishing credit. This knowledge is learned from those who work in a financial field or work for a bank or lender. They know quite a bit about credit, how to establish credit, how bad credit affects your credit score and how to repair your credit. To start with you must focus on how to start earning credit and where to go first. The first way that you can establish credit, is not actually a company providing credit to you. It sounds strange, but you are actually providing the credit to yourself. Let’s explain. There isn’t a company who is going to look at you and say, “Well, this person looks like a fine upstanding individual and I feel like giving them credit.” This is not how it happens. When a creditor gives you a credit account, they are essentially assuming a risk; after all you are leaving the store with a brand-new piece of merchandise that you didn’t pay full price for. The full purchase price is still due for the item if they issue credit. You must pay the remaining balance to the creditor. The plan is to start off small and gradually earn credit as you go in very small steps. By gradually earning credit you are proving to creditors that you are responsible and if they extend credit to you, they will not be assuming such a huge risk. Steps to follow to establish new credit. To start with you can open a secured or Pre-paid debit card. You will find a credit card company who offers a prepaid debit card to those who have no credit. You will sign up for this card. The catch is you have to put down a “down payment” which provides the available amount of credit. The card will have a pre-established credit amount, and you will make an initial deposit on the card. You will not be getting this down payment returned to you. It is needed to remain in place as security (credit). You have just established your first credit line. Next you will begin to use this prepaid debit card for your purchases. This is not a credit card. This is a prepaid debit card that works like a checking account. You should only be making purchases that you normally are making like putting gas in your car and buying groceries. You will not be buying anything that you do not absolutely need or normally would not have bought before you got this card. Treat this new credit account as you would a checking account, where you will put the money back in. When you put this money back into the account for what you spent, it is establishing your payment history. It is showing you can make payments in a timely manner just as you would with a credit card. Credit is about responsibility. Responsibility is shown by making the payment due, before the due date. When you acquire your first real credit card, it will be the same principal. You charge up a balance, and then the credit card company sends you a statement of your charges which shows that you have payment due. You temporarily used it, and now you are placing it back, which is credit. Here is the golden key to remember when making your payments. The statement will show that your minimum payment due is $25.00. You think, wow! I only owe $25.00? This is awesome! This idea is incorrect and this is how people abuse their credit and land in debt. You will always want to make the payment for the full amount due, not the minimum payment due. You spent it, now put it back. Every month, you will spend a certain amount, and then you will pay it back. This is credit. You are now discovering the rules of using a credit account. You do not want to spend the entire amount of the available credit. When establishing a credit history, creditors want to see you spend 10% - 50% only. You will consistently deposit it back in full each month when you receive the statement. Managing your credit wisely increases your ability to gain more credit down the road. Once you have established your ability to pay on time, pay the entire balance, and demonstrate your ability to manage your credit as it is intended. Remember, spend and pay back. Now that you have learned how to use credit you can look at your credit as something you can fall back on if needed. Always remember not to buy more than you can pay back. Some people use the entire credit limit available and are unable to pay it back either now or later. Therefore, they constantly have a balance due for the entire credit limit available. This leaves no credit available when the credit limit is maxed out. How long will it take to get credit? Here comes the challenging part. Follow all of the rules for one year. Charge and pay back the entire balance every month with no late payments. It takes one full year to establish a new credit line. Once you have established an on time payment history for the full year, the credit reporting bureaus have a record of your payment history. Congratulations! You have now established credit that shows up on your credit report! Keep this account open and keep making the purchases and payments as you have been. After one year you can look for another credit card either as secured, or who issues to “Fair” credit scores. Limit your applications to credit card companies; as this will result in a large amount of credit inquiries to your credit report which is equally not a good idea. Open a second card and make the payments just like you did on the first one. Only this time, these cards that you are establishing credit with, will Increase your credit limit after showing you can maintain a good payment history for the 1-2 years. You are now establishing a credit history and can look forward to higher credit limits available to reward you for your good credit history. Do not miss payments or be late on any payments. This is immensely noteworthy because late and missed payments are reported on your credit report and impact your credit score in a negative way. You also don’t want excessive credit accounts that you can’t keep track of or make the payments on. Use your credit very wisely, and it will reward you someday when you absolutely need it. Follow the rules by always paying back what you spent. Don’t make too many new credit inquiries by trying to open too many new accounts. Slow and steady is the rule. You worked hard to establish this credit, and you don’t want to bruise it.