5 Ways to Build Credit from Scratch - Payment 1 (2024)

Your credit score is the central number that financial institutions check before they lend you money, and if you’re looking to get a mortgage or a personal loan, you’ll know that you can’t do this without a good credit score.

But do you know how you can build a good credit score? And do you know how to build credit from scratch? This number does not simply go up without building it up. It takes time, patience, and commitment to get it to where lenders will see you as a good customer.

Here are 5 ways to build credit from scratch – from what you need to do, what options you have, and how to fast-track the process. These steps can help make everything a lot easier for you.

Get A Credit Card

When you’re just starting your credit journey, one of the simplest ways to get your credit rolling is to get yourself a credit card. This is the simplest way to increase your credit score, so if you’re not interested in getting one, you might want to reconsider.

If you don’t have any credit history, you may be denied a loan, so credit cards are the easier option. Credit builder cards may be a great option for you. These credit cards charge no annual fees and no interest, primarily to help customers start from scratch.

If you don’t have access to credit builder cards, however, you can also get three other types of credit cards that don’t need a credit history. These include:

  • Secured credit cards
  • Student credit cards
  • Retail credit cards
  • Cash-flow underwritten credit cards

These have their own advantages, but the idea is the same. If you want to build your credit, make a habit of buying only what you can pay off on time. Make sure to always pay on time and pay above the minimum to cut down your monthly payments.

Get A Credit-Builder Or Secured Loan

There’s another way to start your credit journey if you’re not into plastic. Using a credit builder or secured loan is a strong alternative that will allow you to get financing while building your credit.

A credit builder loan is a type of forced-savings loan, which allows the lending company to hold the money you borrow until you pay the loan in full. The entire point is not to lend you money but rather to get your credit profile started.

Secured loans are another way to build your credit through loans, whether it’s a car title loan or a secured savings loan. The loans require collateral, which means you have to give an asset to the lender. The asset can be a house, a car, or any other type of asset that the lender can trust.

The collateral you put up secures the loan, which means that the lender will seize the asset if you fail to pay.

The great thing about credit builder loans and secured loans is that you don’t need much money to get started. In fact, auto loans are capped at a quarter of the value of your vehicle, while credit builders do have “no credit checks” to help you secure it.

Become An Authorized User

A common solution for students looking to build their credit is to become an authorized user on a parent’s credit card. This allows you to be listed as a co-applicant on a parent’s credit card account, which can increase the amount of credit you get approved for.

Becoming an authorized user can be a great way to build credit. This can also allow you to start renting an apartment and setting up utilities. Remember that this doesn’t count as a credit check, so it won’t negatively affect your credit score. It will only make your credit profile look better.

If you’re not interested in using a credit card, you don’t have to spend anything at all to benefit from being an authorized user. Simply confirm with the card owner that the card issuer is reporting user activity to credit bureaus.

For those planning to use the credit card as an authorized user, you want to make sure you both agree to baseline terms and conditions. These conditions can be anything, from having a limit to how much you use or how and when you’re paying your share of the debt.

Pay Bills On Time

Late payments affect your credit score considerably. If you want your credit history to be squeaky clean, you should always pay your bills on time and pay more than the minimum.

Rent reporting services are also reporting if you pay utilities on time, making it essential to building your credit score.

If you’re unable to pay your bills on time, talk to your credit card company immediately or find a way to source money. They may be able to extend your due dates or lower your monthly payments.

If you have to, get a cash loan if you’re expecting some money after a specific date. But again, keep in mind that missing any payments will hurt your credit score even more.

Maintain Good Credit Habits

It takes a while before you can build your credit score, and there’s nothing you can do about it. You need to make sure you maintain good credit habits that can help you build credit over time.

Start with paying off your debts on time, from your credit card to your student loans. This is one of the best ways to build credit as it improves your credit utilization ratio, which is one of the most critical factors most lenders look at.

Keeping your balance low on credit cards and other loans, like car title loans, is also a great way to build credit. It will also help you pay less interest over time.

Don’t be afraid to use cash loans to pay off other bills on time. While this may add to your existing types of payments, getting a small, quick loan should help prevent you from paying late fees.

Late fees at this stage can incur very high-interest rates, which can be worse than getting a new cash loan. If you’re borrowing a quick loan, make sure you have enough to pay for it and close it off before the due date.

The Bottom Line

Building your credit is no easy task, and neither does it happen overnight. It takes time, patience, and self-discipline. But the sooner you start, the easier it is to get approved for loans and credit cards.

Before you get started, make sure you know your credit score so you can prepare to get approved for credit. Whether you’re still building your credit or you already have one, getting a loan can help get you started.

Payment1 offers different kinds of loans that you can use during emergencies. From car title loans to personal loans, we have something that can help. Talk to us now and start building your credit today.

5 Ways to Build Credit from Scratch - Payment 1 (2024)
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