Building your credit and having a high FICO score is a way to let lenders know that you can responsibly handle debt repayment. If you have no credit history, you have to build one for the sole purpose of proving that you are worthy of receiving credit from various lending institutions.

For example if you are looking to get a student loan and you have no cosigner and no credit history you are going to have a very difficult time.

If you’ve yet to establish credit, or are looking to rebuild credit, then here are a few ways to help give your credit the boost it needs:

1. Get a Retail Store (or Gas) Credit Card

Building your credit score involves starting out small. In other words, your first foray into the world of credit won't be in trying to secure a significant mortgage.

One of the more reasonable ways to build initial credit is through a retail store credit card – you can also apply for a gas station card. Ideally, start out by charging smaller purchases – the amount of the purchase plays no factor in how quickly you build credit. Then, pay these bills, IN FULL, promptly each month to build a history of on-time payments.

Photo By john millar

2. Establish a Relationship with a Local Bank

If you’ve held a checking or savings account with an institution for any length of time, then talk to them about applying for a credit card or small loan.

The loan isn’t to be used to buy anything, but instead stash the money away and make monthly payments per the terms of your agreement. Yes, with this option you’re going to lose some money in interest, so be sure to take out a small amount as the sole purpose of this exercise is to build your credit. If this is the route you choose, confirm with the bank that they report to all of the 3 major credit bureaus.  

 The preferable route would be to open a credit card with a small limit. As mentioned previously, charge a small amount to the card each month and then pay it in FULL before the due date to avoid any interest accruing. Do this consistently for 6 months and you’ll find that you’ll begin to build credit rather quickly.

3. Consider Secured Credit Cards

If you’re having trouble obtaining credit via the first two options, then a secured credit card is likely your best alternate. These cards go by the moniker bad credit credit cards and really give you a great opportunity to build credit.

In the case of secured credit cards, instead of just giving you a credit limit, the issuing company is going to require that you put a “deposit” on the card. This deposit will serve two purposes: (1) it will be your credit limit and (2) it acts as collateral for the credit card company in the event you can’t pay your payment.

There is no risk though assuming you use the credit card for small purchases and pay off your balance (in full) each month. Once you’ve established your credit, you can simply close the card at which time you’ll get back your full “deposit.”

Consider the above top ways to build your credit systematically. While I’m not a believer that the credit score is a tell-tale indication of your financial situation; it is however necessary if you ever plan to purchase a home or take out any other sizeable loans.

Jason is the creator of the free How to Become Rich e-course, and the founder of WorkSaveLive where he educates his readers on how to save money, pay down debt, and build wealth.