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While individuals with good credit can live relatively luxuriously on an average income, individuals with bad credit who earn the same amount have a notably lower quality of life. This is not only because they don’t have access to a line of credit, but also because it is much more difficult to be approved for loans, vehicle and home rentals and even job applications. Fortunately, establishing good credit from scratch is a relatively simple process that can be accomplished by following the three easy steps below.

Applying for a Credit Card

The first step in establishing credit is applying for a basic credit card with a low credit limit. Contrary to popular belief, financial institutions are much more likely to approve someone with no credit than to approve someone with bad credit. Most first-time credit cards have credit lines of about $500, but this credit limit can be extended after a couple of months of making timely payments. The credit line and privileges available to the cardholder depend entirely upon their credit score and credit history. Applicants with a clean slate are only given a certain amount of trust, and if this trust is violated the credit score can quickly plunge into the dreaded ‘poor’ bracket (below 600).

Making Conservative Purchases

Following approval for and receiving a first credit card, it is time to slowly but surely begin making small purchases. To maintain optimal credit score growth new cardholders should never exceed more than 50% of their available credit line. Ideally, it would be best to purchase a couple of small items or pay a single monthly expense with the card and then avoid using it until the next billing cycle. By making conservative purchases cardholders can maximize the chances of being able to repay the outstanding balance at the end of the month, and minimize the possibility of incurring late penalties or only being able to afford the minimum amount due.

Knowing How Much to Repay and Making Repayments on Time

While repaying the minimum balance due each month will not necessarily cause damage to the credit score, it will hinder the process of building it. To avoid interest charges one could repay the monthly balance in full before the end of the grace period, however this is not the fastest way to build up the credit score, as card issuers actually prefer that cardholders incur interest each month, since this is how they earn their profit. Thus, the fastest and most effective way to build the credit score is to repay at least 50% of the outstanding balance each month, and to ensure that all payments are posted to the account on time.

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