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Chapter 2 Building Good Credit

Building Good credit is easy but it takes time and a little bit of work.

First, you'll need to establish credit. In time you will want to develop at least three different credit sources. 


Here are some steps you can take if you cannot get a credit card with no credit:

  • Get a secured credit card 

  • Become an authorized user on someone else's credit card

  • Take out a small loan or line of credit

  • Get a Credit Builder loan

What is a Secured Credit Card?

A secured credit card is a type of credit card that requires a deposit to be made in order to open the account. The deposit acts as collateral for the card, which means that the credit card company will take the deposit if you don't make your payments.

Secured credit cards help you build your credit score by demonstrating that you can repay your debts on time.

When you apply for a secured credit card, you will need to provide the credit card company with a deposit. 

The amount of the deposit will be the credit limit on your credit card.


Once your deposit is made, you will be issued a credit card with a spending limit that is equal to your deposit.


You will get a bill every month you charge something on your card.  You will have up to 21 days from the statement date to make the payment from.  The statement date is the date your statement prints and is mailed by the credit card company.   


VERY IMPORTANT:  Even though you made a deposit for the amount of your credit you still must make your payment on time.  If you are late or miss a payment it will be reported to the credit bureaus.  The whole goal of getting the card is to prove to a lender you can make your payments on time.

If you use your secured credit card responsibly, in six months to a year the credit card company will convert your secured card to an unsecured regular credit card.  They will refund your deposit.  You have just graduated and now have an unsecured line of credit.


Check out How to Build an 800+ Credit Score.

What is an Authorized User?

An authorized user is a person who is added to a credit card account by the primary cardholder. The authorized user has the same privileges as the primary cardholder, including the ability to make purchases, dispute charges, and receive statements.


The authorized user's credit history will be affected by the primary cardholder's payment history on this card, so it is important to choose someone  with a credit card that has no missed payments in the last 7 years.  .   


Becoming an authorized user can be a great way to build credit for students, young adults, or anyone who is trying to improve their credit score. 


If your parents do not have good credit you may ask an aunt or grandparent or good friend of the family. The Authorizer is actually at risk for any purchase you make on their card. It must be someone who trusts you.

Take out a Small Loan or Line of Credit 

If you belong to a credit union or Bank you may be able to get a small unsecured loan. Explain to the lender that you are trying to build your credit.  


A friend of mine got his first loan at a local credit union to buy a bicycle. The credit union was promoting bicycles. He did not have a credit card or car loan or anything when he got this loan.


After he paid off the bicycle he ended up with a credit card from the credit union.

Get a Credit Builder loan

A credit builder loan is a type of loan that is designed to help people with bad or no credit build their credit history. With a credit builder loan, you borrow a small amount of money from a lender, and then you make monthly payments to repay the loan. 

The lender will deposit the loan money in a savings account that you will have access to when you pay off the loan.

The lender reports your on-time payments to the credit bureaus, which will help improve your credit score.


If you miss or are late with a payment on a credit builder loan, your missed payment will also be reported to the credit bureaus. This will have a very significant negative impact on your credit score.


Usually a local credit union will have a Credit Builder loan program or you can search online for one.


The Steps to Building Good Credit

Lenders want to see a long history of you making payments on time. They want to see multiple lines of Credit. Your credit score will grow quickly if you acquire a few lines of credit, and never miss making a payment on time. As your average credit goes over 7 years with no missed payments and you have under 10% credit utilization your credit score will approach 800.


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