How to Establish Credit When You Have None At All!

Hey girl, hey!


Have you found yourself reaching that stage of adulting where you know establishing good credit is an absolute must? Unless you plan on paying for… pretty much everything you have upfront and in cash, it’s definitely your best bet to start building credit now...before you need it. Don’t know where to start? I gotchu, girl!

First let’s start by understanding the most common types of credit, both of which you’ll eventually need to have a well rounded credit report. Revolving Credit is the type of credit that allows you to continue to borrow money (up to a pre-set amount) and carry a balance from month to month… hence the term ‘revolving’. An example of this type of credit would be a credit card. You can swipe that thang to your little heart’s content until it’s maxed out, but you’re responsible for paying at least the minimum amount due per month. But to be quite frank, if you’re carrying a continuous balance on a credit card, the only real winner in this situation is the credit card company, because each month their making more money off of you by tacking on 20%+ interest. Many people have been told that carrying a balance each month actually helps your credit….but don’t fall for the hype, this is a myth. Nevertheless…. I digress. We’ll talk more about being responsible with credit cards later in this post. Installment Credit is the type of credit that allows you to pay regularly scheduled monthly payments (with interest, of course) until the item is paid off. Generally, people understand this as a loan. Whether you get a car loan, a student loan, or a loan from your mama… you most likely will have to pay the money back in installments, because you don’t have the money upfront. The only difference is... your mama just might not charge you interest. Now that we got that out of the way, let’s discuss how we can establish some credit from scratch. Get a Secured Credit Card. While I hate to tell new budgeters to get credit cards, it’s essential to building credit. If you have little or no credit at all, a regular credit card may be difficult to obtain, so a secured credit card will be the next best thing. The difference between a secured credit card and an unsecured credit card is a required deposit. Secured credit cards will require the cardholder to pay an initial security deposit to lower the company’s risk of extending a credit line. Just a small price to pay to help get you on your way to building credit for yourself. The good news is that this new card will now be reported to all three credit bureaus, establishing yourself as a responsible and creditworthy cardholder! (Look at you go!) More than likely the beginning credit limit will be low, which is a-okay. You don’t want to get yourself into credit card trouble when you’re first starting out. Keep your Balances Low! ​Now that you have this credit card, the rule of thumb is to keep your balance below 30%. Let’s do the math! Say you have a $200 credit limit. $200 x .30 = $60. So while the credit card company says you have a $200 line of credit… it’s actually $60 if you want to keep your score high!

​Take out a Small Personal Loan. Taking out a small personal loan of $500 to $1000 from a credit union or bank can really help build your credit score because you’re adding an installment account to your credit report. However, the key here is to not get tempted and go crazy spending this money you just received. I’d suggest setting it aside in your Bill Pay Account and paying back a little more than the minimum balance each month to avoid paying so much in interest. Don’t have a bill pay account, girlfriend? Read all about it in my “How Should I Organize and Separate My Money?” post. Make Payments On-Time, Always! ​Because payment history is worth a whopping 35% of your credit score, it’s in your best interest (no pun intended) to start out paying bills on time and continue to pay bills on time. Once those 30 day, 60 day, or 90 day late payments hit your credit report, it’s a huge pain in the ass to get them off (if you can). Most companies will not even remove those negative late payment hits once they have been reported. So at that point, you’re pretty much S.O.L., unless the loan gets refinanced with another company or gets completely paid off. So...establishing credit for yourself may initially seem like a challenge, but it's essential to your financial well being. If you follow these steps... I can promise that you'll be setting yourself up for success! You got this, girlfriend! What did you learn from this post? Until Next Time, Elle

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