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How to Build Credit from Scratch

Building credit may seem like a hard process to incur at first. Every time you apply for credit, the lender is going to view your credit history. Your credit history will give the lender a better understanding if they should allow you to proceed with the loan amount you are applying for. There are a few things that you should do to improve your credit and help you get the loan amounts and interest rates you desire. 

The first step to take is to apply for certain types of loans to help you start building credit. Secured credit cards, retail cards, and installment loans are the options that will work best for you, if you are just starting out with getting credit. A secured credit card is a card you will be required to make a deposit on up-front. The deposit amount you make will be the maximum card limit that will be available to you. A secured credit card can be applied for and received from a bank. The bank will be able to advise if they report their secured credit cards to the three credit bureaus. You will want the card to be reported to ensure your credit history will improve. However, a prepaid card is not considered a secured credit card. Prepaid cards do not report to any of the credit bureaus and will not help you with building your credit. 

A retail credit card is a card you would get from any retail store. You will only be able to use the card at the retail store that gives you credit. This will help you to ensure you are only spending the credit card amount at the retailer of choice. The amount on these cards are generally going to be small limits. 

Installment loans are loans that will have a monthly payment due each month. You can receive an installment loan by getting a car loan or a student loan. Student loans will not report to your credit until you are required to make payments which is after you graduate from college. 

After you have received credit from an installment loan, secured credit card, or retail store, you will be required to use the card responsibly. Credit utilization on your credit cards should never be more than 30 percent. When you use more than the 30 percent, it will show creditors that you are spending more than your means with credit. You will want to avoid using any cash advances. Cash advances will have extremely high fees and high interest rates that you will be required to pay back if you use it. 

A great way to use a credit card is to only use it for purchases you have cash for. This way you can set the cash aside to pay off the credit card on your next billing cycle. This will help guarantee that you don't overspend your needs and can stay on top of your monthly credit card payments. You will want to pay off your credit card each month to help you stay away from being in debt in the future. 

Another way to help build your credit is to always make your payments on time. You will need to manage your open accounts to see when the payment due dates are. Every bill that you have for the month should be paid off in full to keep you on track financially. 

If you are just starting out with getting credit, you may start to receive new credit card offers in the mail. The credit card offer may seem like a great deal, but it doesn't mean you have to apply for it. Every time you apply for a new credit card, the lender is going to pull your credit report to check your history. This will put a hard inquiry on your credit report and can cause a negative impact. It's better to apply for new accounts every few months to help keep your credit in top shape.

You will need to keep a close eye on your credit report at all times. Errors and identity theft are huge factors that you are going to look for. When you check your own credit report, you will only put a soft inquiry on your credit report which will not impact you. 

The longer you keep a job is going to show lenders that you are dependable. Your job and the length of employment can show up on your credit report. When you are able to keep a steady job for a long period of time, it is going to show lenders that you are responsible and can take care of your spending needs. Credit history takes a long time to build. Just be sure to be patient and watch your credit improve consistently. 

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