Just Starting Out? Here’s How to Build Your Credit Score from Ground Up

February 8, 2024
Credit Score from Ground Up

According to FICO, nearly half of Americans have a very good and exceptional range of credit scores between 750 and 850. A solid credit score is necessary for financial borrowings like credit cards, personal loans, etc. 

The process of building a decent credit score from scratch can be a tough task for individuals. Financial firms and banks always analyze your credit score to see your creditworthiness. This process is necessary to assess the borrower’s capacity to pay back the loan amount. 

The credit report of every individual shows their past credit handling and future repayment abilities. If you do not have a credit history you can not get loans from professional financial institutions.  In this write-up, we will guide you on how you can build a credit score from scratch. 

Understanding the Foundations

A credit score is a three-digit number that shows the creditworthiness of an individual.  Credit scores range between 300 and 850. The higher your credit score is, the higher your probability of getting approved for personal loans online will be. 

Credit score changes based on your credit history which includes factors like number of accounts, amount of past and present loans, repayment cycle, etc. 

The credit score model was first introduced by Fair Isaac Corp. which is also known as FICO nowadays. Although there are other credit score systems also available, FICO SCORE is the most commonly used among them. 

Check Your Credit Report

If you are a beginner and want to build your credit score then obtain your credit reports from credit bureaus to check your credit report. Some of the major bureaus are Equifax, Experian, and TransUnion where you can check credit reports.  This step is necessary to complete to assess the signs of identity theft and inaccuracies. 

Establish a Financial Foundation

The first step in building a strong credit score is to maintain your finances intact. It is necessary to establish a financial foundation with planning to ensure you will meet future obligations and loan repayments. 

Open a Secured Credit Card

A secured credit card is a good option for newbies trying to build their credit score from scratch. These credit cards are backed by cash deposits from the cardholder. The amount the cardholder deposits on this card becomes his credit limit.  The process of applying for a secured credit card is the same as for a regular credit card.

Become an Authorized User

Becoming an authorized user is another good way of building a credit score as a beginner. This process will help you establish a positive account history on your credit report. You can become an authorized user with your friends and family members’ credit cards. If you use their credit card responsibly, you will get advantages during loan and credit card issuance. 

Apply for a Starter Credit Card

As a beginner when you want to build your credit score from scratch you need a credit card. But most of the credit card providers ask for your credit history before issuing one to you. In this case, you can opt for starter credit cards.  

These credit cards are especially launched for low or zero-credit score holders. You can build a decent credit score using starter credit cards to back your future loan and credit card issue process. 

Make Timely Payments

Timely payments are necessary to build a strong credit score.  If you will pay all your payments on time, it will be considered as you can meet your financial obligations and repay the loan.  Late payments and missing loan EMIs impact your profile negatively and decrease the trust of lenders. 

Keep Credit Utilization Low

Credit utilization is simply the ratio between credits you have spent and credits you have.  Calculation of credit utilization ratio is very straightforward and can be done with online available calculators.  Financial experts recommend always keeping this ratio below 30% to show yourself as a responsible credit user. 

Life is unpredictable and because of that we often encounter some immediate financial obligations.  These immediate obligations can break your past savings and put you in debt. Building a decent credit score is a long-term process and you will face many challenges during the process.  

You have to keep patient and look for alternative payment sources in times of financial hardships. Being patient in a tough financial situation will not only help you face the problem but also save the decline of your credit score. 

Use Credit Monitoring Services

If you are among the people who are not financially disciplined then credit monitoring services are the solution for you.  These services will notify you about every vital change and keep track of your credit score.  Credit monitoring services will enable you to resolve the issues as quickly as possible. 

Review Your Credit Report Regularly

Regularly checking the credit history and report will give you a better understanding of your financial position.  You can find the potential errors and incomplete information during the review process and solve them.  Financial experts recommend reviewing your credit profile periodically to keep it intact. 

Final Words

Building a strong credit score is a long-term process that needs financial discipline and patience throughout the process. As a newbie, you can start with different techniques to give an initial push to your credit score. 

However regular credit monitoring and timely payments are necessary to maintain a decent credit score in the long term. In this post, we discussed the practices through which a beginner can start his journey of building a credit score from scratch.  

If you find this article insightful about credit score, share it with your friends and colleagues who want to build their credit score.

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