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How to Build Your Credit Score When You Don’t Have Credit History?

The credit market is a complex one and for those who are just getting to know about it, things can be nothing short of a nightmare, especially when it comes to understanding the jargons and the process of calculatingthe credit score.

What is Credit Score and How is it Calculated?

So, let’sget started with the basics!Your credit score is a 3 digit number that is calculated using a math algorithm on a person’s credit report and meant to assess if you would be able to pay your installments on time than default within a 24 month period. This is based on key indicators like your payment history of previous payments that were due, debts history of your accounts, length of credit history from the time you started your account, type of credit and how old is your last credit history.

Common Myths

A common myth that your personal or demographic details like age, marital status, race etc. affect your credit score is not true and you need to understand that any of thatdoesn’t play a role in determining your credit score.

Building Your Credit Score

So, how do you build a valid and a good score if you don’t have any yet? Here are to four pointers that will help you get started –

  1. Get a deposit based credit card, which is also known as a secure credit card. You pay a deposit to the bank for a credit limit that is equivalent to approximately 80-90 percentage of the deposit and then use the same. Unlike a debit card, this helps generate a credit history that helps you in getting a good credit score. And, you can choose a good like Banana republic credit card that offers you several added benefits such as reward points on your retail spending.
  2. Use this card often and ensure you pay back the credit on time to establish your credibility and also to have a payment history. The credit sought should be around 50% or less than that of your credit limit, else it will bring your credit score down.
  3. Always pay before your due date as this affects your credit score. Since this is the time you are trying to establish a valid credit score, you should always ensure that the payment is made on or before the due date, else you risk a lower credit score and work against the purpose that you borrowed for in the first place!
  4. After a period of six months, you should be able to establish a reliable credit score and post twelve months, you are fairly capable of proving to the banks that you manage paying back your debts. This is the time when you switch from a secured credit card to an unsecured credit card. But you have to be with these four pointers after you get your unsecured credit card approved. If you are punctual and careful, you will be able to have a good credit score in a matter of two years.

Don’t Take Too Many Unsecured Credit Cards

Besides these aspects, it is also essential that you don’t have too many unsecured credit cards once you’requalified enough to get them. This always affects your credit score profusely as you are trying to create a new length of credit every time you borrow from one of the numerous vendors.

In a nutshell, establishing a credit score often seems impossible but can be built with patience and persistence if you need to borrow in future. And, a good credit score can help in easy approval of auto loans, home loans, personal loans, and all types of unsecured loans.

About Stephanie

Stephanie Rosen is a financial market analyst and a blogger. She writes about stock market and investment opportunities around the world. You can find her latest ideas on here. Just signup our news letter today and receive regular updates of Stephanie.