Credit begets credit

The first thing you will need is –ironic- to borrow. This is no easy task. If you have no loans to show what kind of borrower you are, most institutions will turn you down. There is a way to work past this. Many financial institutions offer secured credit cards. This means that you deposit an amount that's then pledged to obtain a credit card. The amount you pledge becomes the limit of the card that is issued to you. At OAS Staff FCU, the minimum amount for a secured credit card is $1,000. The credit union also offers secured loans that work in the exact same way. After 60 days of using one of these cards, it will reflect on your credit report. They're a safe and easy way of establishing credit, and they also help you when booking things that require a credit card.

Use it

Now that you have a credit card, use it. It's easy to think of credit cards as free money. Charge now, pay little by little. And while this is essentially true, if your aim is to improve your credit, then using credit cards as actual loans is not the way to go.

Instead, try to picture your card as a debit card, and use it to pay a few specific things that you buy every month. Restaurant bills, gas for your car, metro tickets, or haircuts. Whichever just pick a few things that you know that, once added up, do not exceed your card limit. Use your card to pay for them, and pay the bill off each month. Rinse and repeat.

Don't abuse it

There's nothing that looks worse than a $995 balance on a $1,000 card, month after month. A prospective lender will immediately see that you cannot pay this loan balance off. If you can't pay, should they lend you more money? Don't max out your credit cards unless you do so as part of your monthly plan and pay it off right away.

Minimum payments

If you have more than one credit card, and you do use them sometimes to borrow and pay off over a period of time, always try to pay more than the Minimum Monthly Payment on your statement. Aside from saving you a bucketful of interest over time, it shows as a very positive note on your credit report.

Check writing

The networks that process checks do have their own agencies for tracking bad check writers, but they do not cross-link with the major credit reporting agencies. Therefore, if you have access to online banking, you're better off using electronic payment systems to process your payments. It's faster and safer.

Pay timely

Avoid paying late like the plague. Because even if you catch up and pay only 10 days late, or make two payments in one the next month, it shows on your credit report.

If you always pay on time but you forgot, or your check got lost in the mail contact the company to which you paid it and ask if they will remove the late notice from your account, as they can see that you have always paid on time. Of course, this will only work once.

Again, using online banking to make payments also prevents the possibility of having checks lost or late in the mail.

When you can't pay on time

If you have a hard time making a payment one month, contact the lender and explain the situation. Ask for a one-month extension, most lenders and credit card companies grant them as exceptions. If yours is a difficult situation that will last more than one month, ask you lower your payment temporarily. Most lenders will work with you if you are candid about temporary hardships.

If you're feeling ambitious

Up to this point I've explained how to build credit if you have a low score or no credit history. If you want to learn how to build an outstanding report, read my next article.