Starting From Scratch? Here’s How to Build Your Credit

Table of contents

If you don’t have a lot of credit history, it may seem a little intimidating to get started. But starting from scratch isn’t as difficult as you might think.

Key takeaways

  • Understand factors that can hurt your credit score and pay bills on time to prevent late payments.
  • Avoid little-known mistakes, like double payments or taking on new credit accounts, that can hurt your credit.
  • Use credit cards to your advantage by having a game-plan and only using them for fixed expenses to avoid excessive debt.
  • Building credit from scratch is easier than you think, as long as you avoid excessive debt and late payments. Consider consulting a reputable credit counselor for help.

Understand factors that could hurt your score

Prevention is key. Once a late payment is sent to collections, this will harm your credit, and paying off that delinquent debt won’t boost your score either. Negative information on your credit history, like bills sent to collections, can stay on your credit report for several years.

It’s important to pay all your bills on time because late payments can negatively affect your score. Unfortunately, not all bill payments will boost your credit score. For example, paying off an auto loan early probably won’t raise your score. However, keeping up with your utility bills and credit card payments will help you build credit.

For regular bills like student loans or car payments, make sure to pay these on time to prevent late payments from hurting your score. Consider setting your bills to auto-pay, or putting reminders in your calendar so you don’t miss payment due dates. Just don’t expect all your bill payments to help you build credit.



Little-known mistakes you should avoid

For your monthly bills, confirm if you are on auto-pay or not (especially for utility bills!). Sometimes, you may pay a utility bill in advance, just to be charged a second time on the auto-pay date. If this occurs, the double charge is usually credited to your utility account, so you don’t lose the money, but it’s definitely frustrating to be automatically charged for a bill you already paid!

Another thing to avoid, if you’re at the mall and a cashier tries to sell you a retail card, this may not be a good idea. Taking on new credit accounts like retail cards can hurt your credit if you don’t know how to use them properly.


Use credit cards to your advantage

Having some utilities in your name, and paying those bills on time, is definitely a good idea for building credit, but a more effective way to build credit is through a credit card.

The great thing about starting from scratch is strategizing how you use credit cards. If your main goal for credit cards is to build credit, then it’s easier to stay on top of your monthly payments. As long as you don’t have any negative information on your credit history, then applying for a new credit card shouldn’t be too difficult. Just don’t get carried away!


Have a credit card game-plan

Let’s say you have little credit history, so you apply for a new credit card, and wow! They give you a total available credit balance of $1000 per month! You now have an extra $1000 to spend each month, right?

Actually, no. For your monthly credit card spending, you want to stay within 15% of your total available credit balance. If you get $1000 of total credit each month, don’t spend more than $150 on your card before paying off the full amount from your checking.

You do have the option to only pay the minimum balance each month (instead of paying off the full amount). However, only paying the minimum amount probably isn’t a good idea. If your goal is to quickly build credit, then paying off the full amount each month will get you there faster. Also, only paying the minimum balance means taking on more debt.


Avoid taking on too much debt

It can be tempting to rack up debt each month. To prevent yourself from making this mistake, you should only use your credit card for a fixed expense like gas or groceries. If you use your credit card for more variable expenses like online shopping, this can rack up credit card debt faster than you think. Use your credit card on one or two expenses that you NEED to buy each month, not impulsive purchases that you want.

All in all, keeping your credit card debt low and paying off the full amount each month will help you build credit relatively fast.


The takeaway

If you have little to no negative information on your credit history, then starting from scratch will be faster and easier than you think. As long as you steer clear of excessive debt or late payments, then you’ll quickly realize that building credit isn’t actually that difficult.

However, if you do find yourself in a situation where there are errors or negative information on your credit report, you may want to reach out to a professional who can help (Just make sure to avoid those credit repair scams!).


Contact us today

When you find yourself in a bad credit situation, you don’t want to accidentally make mistakes that can harm your credit even more. Talking to a reputable credit counselor will help you avoid those mistakes and address credit problems in the best way possible. Request a consultation with us today.

Picture of Jacquelyn Sublett
Jacquelyn Sublett

I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™

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