Build up your credit from scratch with these tips

Updated: Oct. 21, 2020 at 3:47 PM CDT
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BATON ROUGE, La. (WAFB) - Many of us love a good “zero to hero” story. Well, the same goes for your credit scores.

It’s easy to think being completely debt-free is great, but financial experts say some debt is good debt.

In the world today, credit is considered character,” said Jessica Sharon, the Director of Financial Outreach at Pelican State Credit Union.

In other words, if you don’t have credit, you don’t have character in the eyes of lenders, insurers and even employers.

However, if you’re fresh out of school or want to make a big purchase without a credit history, you have a couple of options.

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“The best way to establish a credit score if you don’t have one already is to open up a secured loan or a credit card,” said Sharon.

She says you can open a low-limit credit card but use it wisely. The idea is you buy things on your card that you can already afford to pay back on time.

You don’t want to spend more than 30% of your credit limit. If you get a credit card with a limit of $500, you don’t want to spend more than $150 on the card to build a good reputation.

“That will allow you to grow your credit score as high as possible within the range that you’re working with,” said Sharon.

Another option is getting a small secured loan where you borrow money from the bank you already have in your savings. Then, you practice and prove you can pay back on time.

After a few months, you may be on your way to a good score.

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“Sure, you’ll start developing a score as your payments start reporting on time, but having 6 months is really what a lender is going to look at when they are trying to see how have you paid your bills.”

Now, Sharon adds student loans currently in deferment because of the pandemic are not a good look into your financial responsibility. So, gaining credit experience in these other areas speak more to lenders.

You want to build up your credit, not your amount of debt. Taking on too much debt you can’t pay back negatively affects your score. That’s why Sharon recommends you start small and see the progress.

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