The Veridian Blog

“Raising your FICO score is like losing weight – it takes time and there is no quick fix!” – www.myfico.com

Unfortunately, nothing is more true in the lending world. For students, new residents, and those who pay by cash, this may be a discouraging fact. Other than going to B-paper loans, or trying to have a spouse or family member qualify, my advice is to wait, rent, and build credit over time.

There is no great secret to building credit. The key is to be financially responsible and the longer you do it, the better your score will become. To start, those with minimal or no credit should consult their banks to open a credit card. The bank will typically look at employment, residence and even utilities history to determine creditworthiness. Whether or not the applicant succeeds, I also recommend one or two (but no more) other department store and/or gas cards because they are usually easier to qualify for. Be careful that every time new credit is applied for, your score will be lower, especially if multiple accounts are opened rapidly over a short time frame. So despite the initial setback in FICO score, the focus should remain on improving credit over a long-term period.

Once approved, applicants absolutely need to be disciplined and use credit properly otherwise the strategy will backfire and it will be that much longer before they can qualify for home loans. The new credit cards should be treated as a means to establish good credit and not as a new tool to make more purchases. Once the card is active, the applicant should make small purchases with the intent to pay off the full balance every cycle. The payment history will then be reported to the credit bureaus and your score will slowly climb upward as long as payments are made on time.

Establishing credit os only the first step.  There are no shortcuts or tricks that can take you from no credit at all to a high score in a matter of weeks or even months.  Your credit score is based on a number of factors such as payment history, length of time you've had credit, type of accounts, proportion of balance to credit limit, and much more.  So, while it is important to initially establish credit, it is even more important to take the time to do the right things to maintain good credit.