[-- Read Time: 3 mins --]

Trying to build your credit from scratch can seem like mission impossible.  It takes credit to build credit so how are you supposed to get your foot in the door?  Believe it or not, it’s not as hard as you think.  There are a handful of options you can use to get the ball rolling.

Borrow against your own money

Have a certificate of deposit (CD) or savings account?  If so, that may be your ticket to getting a loan.  Some financial institutions offer CD/savings secured loans which allow you to use your account balance as collateral.  Let’s say you want a $1,000 line of credit.  First, the bank will verify that you have at least $1,000 in your account.  Once it’s been confirmed, they’ll place a hold on the funds and issue the line of credit.  During the life of the loan, you’ll only have access to the portion of your savings that wasn’t used as collateral.  So make sure you have enough extra cash reserved to cover an emergency. When you close the line of credit, the hold will be removed.  You will have to pay interest on the borrowed amount but the rate is a lot lower than what the average credit card charges.

Apply for a secured credit card

Getting a secured credit card is one of the easiest ways to begin establishing credit.  You’re more likely to be approved because you must leave a security deposit when you open the account.  This will serve as collateral for lenders in the event you fail to make your payments.  It’s also an incentive to do the right thing because you don’t want to lose your hard-earned cash.  Generally, your credit limit will be equal to your security deposit or a portion of the amount.  Be sure to pick a card with minimal fees so it doesn’t eat up too much of your limit.  Once you close or upgrade the account, you’ll get your deposit back.  Not all lenders report secured cards to the three credit bureaus so make sure yours does.  Otherwise, you’re just wasting your time.

Take out a credit-builder loan

Interested in building your savings and credit at the same time?  Well, you can kill two birds with one stone by taking out a credit-builder loan.  Unlike your traditional loan, you won’t get a dime of the money upfront.  Instead, the borrowed amount (usually $500 to $1,500) is placed in a savings account.  You’ll then make monthly payments to the bank until it’s paid off.  Typically, the life of the loan is only one to two years.  Once the final payment has been made, the money is yours to keep.

Become an authorized user on someone’s account

Let’s take a quick trip down memory lane.  Remember when you used to do group assignments in school?  It didn’t matter who did the work, everyone got the credit.  That’s sort of how being an authorized user works.  The primary cardholder adds your name to their account and you’ll start building credit based on their history.  As long as they keep the account in good standing, you’ll both reap the rewards.  You’ll even get a card with your own name on it and the authority to make purchases.  However, only the primary cardholder is legally responsible for paying the bill.  That doesn’t mean you can just swipe until your heart’s content.  Discuss the ground rules beforehand so you don’t put them in a tight spot.  Because if their credit begins to suffer, so will yours. The bright side is you can always ask to have your name removed.

Ask someone to cosign

If all else fails, ask a loved one if they’d be willing to cosign for you.  Having a cosigner makes it easier to secure a loan that you may not have get on your own.  But don’t be surprised if you don’t get any takers.  As much as people may want to help, cosigning for someone is a huge risk.  By signing on the dotted line, they’re agreeing to foot the bill if you fail to pay.  Charge more than they can afford and they’ll be kissing their good credit goodbye. And nobody wants their credit ruined for something they didn’t do.  It doesn’t hurt to ask but don’t expect a long line of volunteers either.

Bonus tip

Getting creditors to give you a chance is only half the battle.  Once you’re approved, you need to take the proper steps to build and maintain your score.  This can easily be done by keeping your balances low and paying them off by the due date. These two simple moves account for 65 percent of your FICO score.  As we all know, the higher your score, the more attractive you become to potential lenders.  Finally, don’t forget to check your credit report annually.  This will make it easy to catch any inaccuracies that may be hurting your score.  If it’s been a while since you took a peek at your report, go to AnnualCreditReport.com for your free copy today.