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How to Build Your Credit from Nothing in 5 Simple Steps

written by: •edited by: Carly Stockwell•updated: 8/26/2013

You may have a low credit score simply because you haven't borrowed funds or applied to a credit card. Here's five simple tips on building your credit score in a smart way.

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    Who is Most Likely to Have a Poor Credit Score?

    Build your Credit Score in 5 Simple Steps Having a low credit score is not necessarily a sign of irresponsible spending on your part. It is true that many consumers do have poor or less than good credit reports at some time due to overspending or carelessness in managing their finances. However, a low credit rating may also indicate a lack of borrowing funds or lack of credit card accounts in the name of a consumer. Often both very young and elderly consumers are found to be in this situation. Since their current lifestyles and financial status do not call for or perhaps allow for frequent spending and purchases, they do not have a recent credit history to rely upon.

    Yet in our modern materialistic, consumer-spending based society, the majority of people with low credit reports are individuals with an ongoing tendency to overspend and neglect regular bill-paying schedules and due dates. If you currently have a poor or weak credit rating, there are some immediate measures you can take to start repairing or improving your rating.

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    How Consumers can Successfully Build Their Credit Scores

    There are several immediate measures you can take to start building or repairing your low credit rating and reference. The following steps are the five most productive ones you can take as a consumer:

    1. Apply for a Secured Credit Card: When you have a secured credit card, you can make charges in the same way you would to an unsecured charge card. The major difference in the two is that when using your secured credit card, you must first deposit funds to this card account as a security deposit to ensure that you will pay back your charged debts as they accrue. In comparison, use of your bank account debit card will not be reported to credit bureaus since the purchases you make with this card are not charges on credit—they are deducted from your bank balance. For this reason, you cannot build your credit rating by use of your bank debit card, but with careful use of your secured credit card, your low credit score will begin to improve. Just by spending responsibly and paying your secured charge card debt on time each month, you are on the road to acquiring a higher credit rating within a few weeks’ time.

    2. Check Your Monthly Credit Card Statement Carefully and Pay Promptly: In order to build and maintain a healthy credit history, you must start by reviewing each statement you receive and paying your credit card bill promptly every month. Carelessness in reading these statements and disregarding billing due dates are primary causes of poor credit scores, even among seasoned charge card users.

    3. Resist the Temptation to Apply for Many Different Credit Cards: Although the prospect of quickly increasing your buying power and credit allowance by applying for multiple charge cards in succession may look attractive, you should avoid doing so. Your credit rating will actually be slightly marred if additional charge card applications are rejected. While you are just acquiring and learning to exercise the skills for good management of your spending and credit charges, it is always best to have just a few charge card accounts to manage.

    4. Limit Your Spending to an Amount You Can Comfortably Repay Each Month: By following this practice, you will both build your credit rating and become a valued customer of the companies you do business with. You will establish your credit history to reflect the fact that you can responsibly manage your debts over time. At the same time, it is essential that you do make charges to your credit cards regularly so lenders and credit bureaus are aware of your ability to manage repayments on debts. If you limit your monthly card charges to within 50% of your credit allowance and pay your bills promptly, you will best enhance both your credibility as a borrower and your strength in terms of a good credit history.

    5. Apply for an Unsecured Credit Card: Once your credit rating has begun to increase, you can consider applying for an unsecured credit card, which requires no down-payment or deposit. Many financial experts recommend waiting to apply until you have made regular, prompt payments on your existing card accounts for one year. Even though your new unsecured charge card account will most likely offer various advantages and a higher credit allowance, only charge amounts you can easily repay.

    Always keep in mind that with good credit, your future will be more varied and bright. You will possess the ability to afford and manage expenses of the life you want to lead. Having good or excellent credit is a gift of empowerment to be used carefully and wisely toward living a varied, productive and generous lifestyle. Gain the knowledge and skills now to become a responsible consumer and citizen of the world and its many diverse economies.

    About the Author: Blair Thomas is an electronic payment expert and the co-founder of eMerchantBroker.com from Los Angeles, CA, the #1 high risk processing company in the country. I enjoy hiking, dining and discovering new music. When I'm not working in the electronic payments industry, you can most likely find me producing and writing music. You can keep in touch and receive my updates by liking my Facebook page.