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Tuesday, March 5, 2024

Mastering Credit: A Guide to Building a Credit history from Scratch

Having a solid financial foundation can give you the edge needed to make the most of the many opportunities that the transition to adulthood brings.

Some of the most crucial choices we make in life, such as where to live, how much to pay for rent, and even whether or not we get the job we want, depend heavily on the state of our credit.

The sooner you start, the better off you will be. In fact, you can start with the youngest build credit is at the age of 18! Just when you have completed high school or taken your first steps at university.

Building credit takes time, patience and most importantly the wisdom to build it the right way, and this article aims to help you achieve this.

The best time to build credit is now!

Getting a head start on your finances is essential because it takes time and will be a major factor in your future adult life, as mentioned above. Your ability to build your own credit and use it to pay for essentials like housing, transportation, and a variety of other necessities is a surefire indicator that you’re doing things right. Which loans or credit cards you qualify for and what interest rates you pay at depend heavily on your credit history.

Is there a difference between no credit and bad credit?

You’ve certainly learned by now from your parents and friends that a low credit score due to things like missing payments, defaulting on a loan, or even filing for bankruptcy can and will cost you more in the long run if you apply. for a new card or loan.

On the other hand, having no credit history won’t hurt you, but it won’t help you either; it will make it very difficult for you to get accepted into whatever you apply for and have to find other means of payment or rely on the creditworthiness of the people you know to help.

If this is your first time dealing with credit, there are a few things you can do to get started!

  • Authorized user.
    • When someone you know and trust with good credit gives you access to their account, it means they are willing to let you use their card. This usually happens between parents and teens because it requires trust and responsibility on both sides.
  • Have a secured credit card.
    • A secured credit card requires a deposit to be held as collateral. The limit on your card is often equal to the amount you deposit (for example, a $1000 deposit results in a $1000 limit).
  • Once you’ve built up enough credit history, you can switch to one unsecured credit card which does not require collateral and depends solely on your creditworthiness and other factors. They come with the bonus of a lower interest rate as well gives you rewards by paying on time.
  • If you’ve let enough time pass, six months or more, it would be good to get a second card; the credit you have available will increase and help lower your credit utilization score if you keep your debt low. Financial experts agree that keeping your credit utilization at 30% or lower is ideal to maintain a high credit score. It shows you Keep your debts manageable.
  • Use a credit building loan if you don’t want a card
    • This type of loan works by first paying back the loan amount in full before you can use the money. It’s an excellent way to diversify your portfolio.

The Benefits of a Solid Credit History!

After you build a track record of good financial management, you may qualify for a larger credit limit and more benefits.

Here’s how to do it:

  • Keeping track of on-time debt payments
    • Set up automatic payments to stop worrying about them
  • Make sensible investments that you know you can pay back and don’t buy beyond your means
  • Do not open multiple credit cards in quick succession; it will have a negative impact

Lenders will recognize your careful lending and smart use of credit with higher credit limits and lower interest rates on loans if you take any of these steps.

And if your score is good enough, you may be able to use it as negotiating leverage to get a better deal on a new home or vehicle, spending exactly what you can afford. That’s what we call value for money!

What is measured in your credit score?

According to myFICOtheir credit scoring system uses five factors to determine your score, including:

  • Your payment history: 35%
  • Amounts due (credit usage): 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit (applications): 10%

As you can see, both your payment history and your credit utilization make up the bulk (65%) of determining your credit score. Make sure you pay your bills on time and don’t rack up too much debt.

For the length of your credit history, it’s a good idea not to close your oldest credit card, as your history is determined by the ages of your oldest and youngest accounts and the average age of each account.

While you can build credit using credit cards alone, diversifying the types of credit accounts can help you create a good credit mix that can give your score an extra boost.

Finally, every time you open a line of credit or have your credit checked when applying for loans. Every hard inquiry any lender or company makes to check your credit will have an impact.

Frequently Asked Questions – FAQs

How early can I start building credit?

You can begin building credit from the age of 18.

Is there a difference between having no credit and bad credit?

Yes, understanding this difference is crucial; bad credit can be costly in the long run.

What are some practical ways to start building credit?

Becoming an authorized user or using a secured credit card are effective methods.

How does credit utilization impact my credit score?

Keeping credit utilization at 30% or lower is ideal for maintaining a high credit score.

What factors contribute to my credit score?

Payment history, credit usage, length of credit history, credit mix, and new credit applications.

Why is having a solid credit history important?

A strong credit history opens doors to better credit limits, lower interest rates, and improved financial opportunities.


Having good credit is probably the most important thing to have; it is connected to many of the essential services, items and places we need to access to live comfortably. The news we read online and the stories shared by people we know can make building credit sound intimidating and risky, but consider your own situation and circumstances. If you know you are a responsible person, there should be no problem.

This article comes from the good folks at Money.com.


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