How to Build Credit Up The Most Efficient Way From 0

We’ve heard time and time again that building your credit is very important in your life. That is true in the United States, where our credit score can impact if we get approved for certain credit cards, mortgages, and even car loans. Even if you don’t plan on getting either of these, more and more people are taking your credit into account, even for renting an apartment, getting phone service, and even applying for jobs. 

It’s in your best interest to get the highest possible credit score you can! It’s much easier to build your credit score starting from 0 then it is to fix a broken score. So you’ll need to start as early as possible!

Step 0.5: Being Added as An Authorized User (Someone With Good Credit/Account)

While not necessary, if someone in your immediate family, like a parent or sibling already has really good credit, see if they would be ok with adding you as an authorized user on their credit. The important thing to look for here is having a good account with very low utilization. If they do not feel comfortable with adding you as an authorized user, see if they would either be willing to hold onto, or even shred the card after they get it in the mail. 

The whole point of this step is to add an account in good standing right out of the gate. Most new credit accounts start with a low limit of $500, so if you can get added to a card with a few thousand on it, you’re already ahead of the curve. Still, if you do not know family member that is willing to add you as an authorized user, that is ok, it will just take longer to get started.

Step 1: Get Your First Credit Card

While there are no legal age restrictions for being added as an authorized user (depending on the issuer, you can get added very young), there is an age restriction for getting your own credit card. The legal age to when you can actually get a credit card is 18. Before the age of 18, it’s unlikely that you would have anything on your credit report, or even have one generated already. It takes 6 months to generate a score. So if you were able to get added in as an authorized user for at least 6 months, you’ll have a score. 

If you don’t have a score yet, your credit card options may be limited. You’ll either be in a situation where you’ll need to open up a secured credit card (requires a deposit which becomes your credit limit) or a card with a very low limit of about $500ish. There are a few credit card issuers out there that are friendly to new credit card reports such as Discover and American Express. These are both great cards because they can grow with you, and will grow without a hard inquiry. Alternatively, you could take a look into student credit cards. 

Either way, the one thing you want to avoid is here is paying a fee for just having the card. Paying an annual fee for a card that does not really offer much in the way of rewards is more reserved for people that are in the rebuilder credit phase. 

Take a look around into the different pre-qualification tools for the issuer you may be interested in. If you’re lucky, you’ll be able to see what you would qualify for, and in the best case scenario, you’ll be able to avoid a hard inquiry to your credit report.

Step 2: Get credit card #2 and #3

At this point you’ve already gotten your first credit card. It’s important that with that first credit card (and really any other card going forward) that you’re responsible and pay it off on time. This shows the lender that you’re responsible, and able to take on more. 

If you do not have a credit report generated yet, and the first credit card was the first thing that could report, wait 6 months until the report is generated. Otherwise, you could just wait a 3 months or so. Apply for two more credit cards. Keep in mind the rules that each credit card issuer has in regards to credit card limits. Ideally, these two credit cards are useful to you and the spend you can put on them. These two accounts still may have lower limits, and that is fine for now. Remember, this is a long term game, and so long as we are obtaining credit cards that we can use, the cards can grow with us.

Step 3: Obtain Higher Limits

We have now accumulated 3 different credit cards. Ideally, these credit cards are useful to us in some way such as their reward categories lines up with our spend. 

Really, for scoring purposes, all we need are about three different credit cards. So long as we can keep the accounts in good standing by paying our bills on-time, and using the cards from time to time, we will look like a good  customer. After a certain amount of time passes, we can be eligible to increase our credit limits, or if we had to obtain a secured card, we may be eligible for the card to “graduate” into an unsecured card. 

If the credit cards you chose belongs to either American Express, Discover, or Bank of America, they will not do a hard inquiry when asking for a credit limit increase. Refer to their rules to see how often you can ask for a credit limit increase. If you chose cards from other issuers, refer to their rules to see if you’ll get a hard inquiry. If there is a hard inquiry for raising a credit limit, give it more time to make sure your credit score has really improved, so that you can get a much higher limit if you decide to go ahead with the limit increase. The better option may be to not ask for a credit limit increase at all on that specific card. 

Step 4: Wait for Average Age of Accounts to Age to 1 Year, Decide Which Route You Want to go Into 

Now that we have our higher limits, and have proved to the credit card issuers we are a valuable customer, we should have scores in the mid 700s. Realistically, we are sort of done at this point. Mid 700 scores will allow us to get the best rates on mortgages, loans, or even credit card applications. We even have a few credit cards already, which shows the lenders that we can handle multiple forms or credit.

 There really isn’t much of a benefit between having a score of 750 and 850, however, if you do want that score, you will have to do a few things. We’ve got the heavy hitters of the FICO score covered, so the only thing to do to improve on that score is to help the parts that only count for a small percentage. That would be the average age of accounts plus the number of accounts. In FICOs algorithm, having 22+ accounts is what gets us the “perfect” score in that category. Those accounts don’t have to be credit cards, they can also be loans (such as student loans), or mortgages. Additionally the longer our credit report history is, the better it looks. Building up the average age of accounts is what looks the best. 

So really, its up to you. You could be happy with the 750ish credit score you have, keep that accounts you have in good standing and build up the credit limits from time to time while also building up your average age of accounts by not applying for anything new. Or, you could go off the deep end, and apply for a ton of different accounts as soon as you possibly can. As each account ages, adding more wont really impact your average age of account total as you’ll have a lot to pull from. Besides, having more accounts is better in FICO’s eyes.

If you want to keep going, the ideal strategy would then me to apply for as many accounts as soon as possible (keep in mind issuer limits). These cards should be useful to you. Regardless of which way you chose, the thing to do next would be to wait until your average age of accounts is at least 1 year old. If you are a college student, or if you spending isn’t that high, it may be worth waiting until you either increase your income, or start spending more. The benefit of waiting of course is that your credit score will be better with the added wait. 

Step 5: Apply for More Accounts

From here, your credit score should be good enough for any card you want. You can apply for any card that is useful to you, including premium travel credit cards. Whichever cards you chose to apply for, they need to be cards that make sense. Ideally, you would start to build up a base of cards that work together to earn even more. This could be either a point setup like Chase’s or American Express’ system, or even a back up system such as Bank of America’s system. Either way, be sure before applying, you can actually meet the requirements for the card you’re applying for. As an example, the Sapphire Reserve card from Chase has a minimum credit limit of $10,000. If you don’t have any other cards around that credit limit, then you probably wouldn’t be eligible, even if your score is perfect. 

This step includes obtaining any other credit card that you could possibly ever want or need. For our credit report, this has the added benefit of improving our score and making our report “deeper”; A 750 score means a lot more when someone has 10 credit cards as opposed to 2. 

Step 6: Wait

After obtaining all of the cards or accounts that we could possibly ever want or need, we need to wait. For that perfect 850 score, it not only requires us to not apply for anything for a while, but also the average age of accounts needs to be pretty high, above 5 years! If everything else is perfect with your report, then  the only thing stopping you from that perfect score is time. With each passing month, your score should slowly rise as your accounts get older. You’ll get into the 800s eventually! Stay patient.

Final Thoughts

It’s much easier to build credit up the correct way when you’re starting from scratch then it is to rebuilt it. Knowing how the algorithm works, and making the right moves can really propel us on our credit journey. And with credit being more important with each passing day, it’s crucial that we get a good start.

Regardless of which way you end up chose to go later on, the first few steps remain the same. Get your first few credit cards in a smart way. Once we have those cards, we can either build them up and be satisfied with our mid 700s score, or go off the wall and really build our credit report for the long term. While it’s much harder to apply for multiple credit cards back to back, it is still possible to get a few cards quickly, so long as you follow the issuer’s rules, you’re safe. Once you’ve got everything you need, to get that perfect score, all it requires is time, and a lot of it. 

Either way, the most important thing to do is to keep up with our credit. For every payment you make on time, you’ll be rewarded in the future. 

How important is that 850 credit score to you? What is your credit score now? Let us know in the comment section down below!

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Creditalacarte is a blog and youtube channel that is dedicated to travel hacking and general credit knowledge. Follow us to gain all of the insights you need in order to be successful in the credit game and keep up to date on current events!

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