Step #1 — Pay your bills on time, every time. This may mean putting them on your calendar, setting reminders or alarms in your phone, whatever you have to do, do it. Also, if you mail your bills instead of paying them online, or if you use your bank online to send a check, make sure you mail or pay the bill 4 to 5 days before it is due to allow time for it to be received and processed.
Step #2 — Don’t get too close to the credit limit. Experts apparently advise people to use no more than 30% of your credit limit if you carry a balance. (Try not to carry a balance in the first place.)
Step #3 — Use a secured credit card to build your history. If you cannot get access to a traditional credit card, you can always get a secured credit card. To get one, you go to a bank and apply, and the bank will have you deposit an amount of money with them into a separate account. The bank holds onto this deposit and then extends you a line of credit in a matching amount to the deposit you made. Sometimes you can graduate or step up to a traditional credit card after you have made consistent on time payments for a certain period of time. Be sure to ask about the bank’s policy for making this transition.
Step #4 — Use a Credit Builder Loan. Some financial institutions, typically credit unions, will allow you to take out a small “credit builder” loan. The “loan” proceeds are put into a locked savings account and then you pay back the loan by making small payments over 6 to 24 months. Once you come to the end of the loan term you receive the accumulated money back and in the meantime, the credit union or other financial institution is reporting your timely payments to the credit reporting companies. So at the end, you have the start of a good credit history and money in a savings account. You can then use that money to get a secured credit card.
Step #5 — Open a credit account with a retail store. Many gas stations, retail stores or department stores offer credit cards with lower credit lines that are easier to get than traditional credit cards. You can build up your credit history by using a card like this wisely. You must not let your spending on these cards run out of control because they typically have very high interest rates (up to 24.9%) and high late fees.