Building Credit From Scratch

Key takeaways

• Good credit will help you save money over time, so it’s important to build strong credit from the beginning.
• You must build credit by getting credit, so we’ve provided three ways to do this.
• Building and maintaining good credit takes time, so be patient, persistent and diligent.

It's like the "Chicken or the Egg" dilemma—if you don’t have a credit history, it’s hard to get a credit card or loan. But if you aren’t able to borrow money, how can you prove yourself and establish credit?

It takes time to build credit, especially when you’re just starting out, but it can be done.

Start by understanding the 4 basics of building credit from scratch

1. Why credit is important 

Your credit score tells people how responsible you are in terms of managing your money. Good credit can help you rent an apartment, pay less for car insurance, qualify for a car loan… it can even help you get a great job. And when you do qualify for credit cards and loans, your good credit will help you get better interest rates and terms.

2. How credit works

Your overall credit is measured by several factors; the two most important are how much credit you use and how well you pay your bills. Other considerations include how long you’ve had credit, how you handle different types of credit, and your history of applying for credit. You need three to six months of credit activity before the credit bureaus can calculate an initial FICO credit score for you.

3. How to establish credit

While it sounds crazy, you must build credit by getting credit. This can be tough when you’re just starting out, but here are three easy ways to begin:

• Get a secured credit card, like those available through Global. It works like a regular credit card, but it's backed by funds on deposit in your savings account. Once you have the card, be sure to make on-time payments, since this is an important part of building good credit.
• Get someone to co-sign for a loan or unsecured credit card. The person who cosigns with you has joint liability for the account, so if they have good credit, this can improve your chances of getting approved. Then be sure to always make your monthly payments on time. When someone co-signs a loan or credit card, they become responsible for the debt if you don’t make your payments.

4. How to build and maintain good credit

It seems counterintuitive but the more credit you have and the less credit you use, the better your credit score will be. Be patient and persistent. As a borrower, you must earn a good credit score over time, so it’s smart to build good credit before you need it.

Once it is available to you, use the credit you have but pay your bills on time and pay off your credit card balances each month. Don’t apply for too many new credit accounts at once; too many inquiries will lower your credit score. Monitor your credit card activity for fraud and check your credit report for errors each year using the free AnnualCreditReport.com.

While it takes time to build good credit from scratch, it can be done. 

Sadly, it’s easier to damage your credit than it is to build good credit. So, once you’ve earned it, work hard to maintain your good credit by paying bills on time and paying off credit card balances each month. The good credit you build now will reward you for years.

Did you know?

• You don’t need to carry a credit card balance to build credit. Transfer your balance to a low interest credit card like the Global Visa® Credit Card and pay off your entire balance each month to avoid interest charges.
• Use your credit, but don’t use it all. Experts say you should not use more than 30% of your available credit. You’ll build a better credit score by keeping your credit utilization low.