How to Build Your Credit from Nothing in Six Simple Steps

If you pay your bills on time and have been financially responsible, but have never had a credit card or taken out a loan, your credit history is a blank slate. Lenders use your credit report to make decisions about whether or not to give you a credit card, what that card's limit should be, or to grant you a loan. But with no credit history, there's no record of how you would manage debt. The result: many creditors won't lend you money no matter how responsible you may be. Here, the team at Quizzle tells you how to build credit from no credit in six simple steps.

Time for a Secured Credit Card

A secured credit card functions like a "normal", or unsecured credit card with one exception?the credit card company requires you to put down a security deposit. Typically $300 to $500, this security deposit assures creditors that you will, indeed, pay back the money you borrow. Often, the credit limit on your secured credit card mirrors the amount of security deposit or a percentage of that amount.

Don't confuse a secured credit card with a debit card. Banks do not report your debit card usage to the three credit bureaus because your debit card is attached to money in your bank account?it is not an extension of credit from a lender.

However, creditors will report secured credit card activity to the credit bureaus because your secured credit card, even with your security deposit, is an extension of credit. When you use it your purchases are not deducted from your security deposit. Instead, when you buy something with your secured credit card you will be expected to repay that money to the credit card company. Again, your security deposit is insurance for the lender because you don't have a credit history. But, and this is the important part, the use of this secured credit card will affect your credit score, so make sure you pay your bill on time, every time. If you don't pay it on time it will negatively affect your credit score.

Don't Spend More than You Have

The most important part about building credit is demonstrating you can pay back the money you borrow to prove to creditors and lenders you consistently and responsibly manage debt. This is why you should start small. The amount you charge matters little compared to your history of paying on time. No matter the amount, pay your debt on time and you will start to build credit. Our advice?only charge purchases you can afford to pay off in full at the end of every month.

The real bummer is that it's just not enough to open a secured or unsecured credit card and just let it sit. If you don't use your credit card, you're not showing your lender or the credit bureaus that you can borrow and repay consistently. To make it a habit, without getting yourself into trouble, make one or two small purchases with your card each month like a tank of gas or inexpensive meal. For the best results, try no to charge more than 50 percent of your total limit each month as this also will negatively effect your credit score.

We Can't Say it Enough?Pay On Time, Every Time

In the end, people make credit out to be more complicated than it probably needs to be. The best thing you can do to maintain and build your credit to obtain a solid credit score is to pay off your bills on time, each month, no exceptions. One late payment can significantly damage your credit score, especially when you're just getting started.

Avoid Applying for Numerous Accounts

Another conundrum in the credit world is that each time you apply for a credit card or a loan, you credit score takes a small hit. Now, when you need to borrow or acquire a new card you can recover from this small hit, but if you repeatedly apply for those "dime store" credit cards at target or your favorite clothing outlet, the small dings grow into a large dent.

Watch Your Credit Report and Score

Now that you have acquired your secured credit card and have been making purchases and paying them off consistently for six months, its important to monitor your progress by checking your credit report and score. Checking your credit report does not affect your credit score, so don't be afraid to check it as often as you would like. At Quizzle, we have tools to help you better understand your report, the elements that make up your score and we provide tools that help guide your behavior to build better credit and potentially improve you score. And the best part, it's totally free.

To take a peek at your credit report and score for free, check out Quizzle.com. Quizzle's the only site that will give you both for free, no strings attached, no credit card required.

Get Your Unsecured Credit Card

After a full year of making timely payments you should now have enough to demonstrate to creditors that you are ready for a regular credit card with no security deposit. Unsecured credit cards will likely come with higher limits and perks like reward points, but remember, never charge more than you can afford. Building credit takes time and patience, but ruining your credit can happen rather quickly if you start skipping payments or owing to much from month to month.

A year may seem like a long time to have to wait, but building credit takes patience. Just remember that credit helps you get what you want. Whether it's buying a home, leasing a car, purchasing insurance or even starting a small business, credit is doing to help support the kind of life you want to lead so be responsible with your new superpower.

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For more tips and tools to help you manage your home, money and credit?including the most affordable credit monitoring on the web and complete identity theft protection?visit Quizzle.com.

Quizzle is a website that provides you with important information about your credit?starting with your credit report and credit score?as well as the tools you need to improve or monitor it, so you can make smart financial decisions. They also show you how your credit impacts your personal finances and give you personalized tips and tools to help you manage it all.

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Source: http://feeds.gawker.com/~r/lifehacker/full/~3/LXf3vFcynqs/how-to-build-your-credit-from-nothing-in-six-simple-steps

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