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Articles » Fico Score | | Build Your Credit Score from Scratch |
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How do you build your credit score from scratch ? Getting started on the road to a good credit rating or rebuilding after a bankruptcy can be a long and tedious process, but if you do it right you will end up with a high FICO score and a positive credit report that can help you achieve your financial goals. Before you begin, it is important to understand how the scoring system works. The following is a breakdown of how your FICO score is calculated:
• 35% Payment History: Late Payments, Bankruptcies, Liens, Foreclosures
• 30% How Much Owed
• 15% Length of Credit History
• 10% New Credit: Inquiries (2 years)
• 10% Types of Credit: Revolving, installment, etc
Obviously, when you first start out, many of these categories will be calculated at zero, but these are the areas that you need to build up if you’re going to eventually have a high FICO score . Before you can get to the point of worrying about late payments or bankruptcies you need to establish some credit accounts.
Secured accounts are a good method of obtaining an early credit history or a credit history after bankruptcy. Secured credit cards are available through banks and credit unions and on-line. Read the terms and conditions carefully and make sure you’re not paying too much in interest. To avoid interest payments altogether, pay off your balance in full every month. That will look good on your credit report.
Secured loans are also a positive start for a new credit report. Go to your bank and deposit as large an amount of money as you can into a savings account. Then use that money to take out a loan from the bank. For a higher interest rate, you can purchase a CD and use that as collateral for the loan. Make your payments on time and you’ll see your FICO score climb.
The key to being successful in building a FICO score is to establish good spending habits and pay all your bills when they are due. Some of the credit bureaus report 24-36 months worth of payment history right on your credit report so timely payments are important. Keep your overall borrowing below 20% of your annual income and let some time go by. You’ll find yourself with a credit score over 700 and have the purchasing power you need to achieve your financial goals.
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