If you don’t have any credit at all or you have bad credit, you should prepare for bad consequences. The lack of credit can make it hard for you to get a loan or credit card. Your credit score is based on several components and you should handle it responsibly so to build a good credit history.

Do you know what your credit score is made of? The credit bureaus use your credit history information to determine a 3-digit credit score that will represent your creditworthiness. The most common credit score is the FICO credit score that ranges from 300 to 850. The FICO credit score is based on the following factors:

  • Payment history – 35% of total credit score

  • Credit utilization – 30% of total credit score

  • Length of credit history – 15% of total credit score

  • New credit accounts – 10% of total credit score

  • Mix of credit accounts – 10% of total credit score

To have a FICO score, you should have at least one account that’s been open 6 months or longer, and at least one creditor who’d report your activity to the credit bureaus in the last 6 months. Be aware that though all 3 bureaus, Experian, Equifax, and TransUnion, maintain a file on you, the information in those files may not be the same. Not all creditors report all 3 bureaus. However, even if the FICO scores might not match, they should be close.

If you’re interested in how to start building credit, consider turning to a reputable business loan provider and high risk payment processor like First American Merchant. With FAM, you’ll get exceptional business funding opportunities, including a merchant cash advance, and start building good credit without any difficulty at all. Bad credit isn’t a problem for FAM.

To start building credit, you should:

  1. Use a Secured Credit Card

A secured credit card works like a traditional credit card. You must pay it off at the end of the month so that not to end up with interest payments.

  1. Become an Authorized User

You can try becoming an authorized user of your family member’s credit card. If your family member has good credit, you’ll establish good credit as an extension of his/her credit history.

  1. Apply for the Right Credit Card

When choosing a credit card for you, focus on the annual fee, interest rate, credit limit, billing cycle, rewards or cash back, and cash advance fee.

  1. Keep Your Credit Utilization Low

To maintain good credit, keep your balance low. Your balance-to-credit-limit ratio should be kept around 30% or less.

  1. Pay off Your Balance in Full

Making your payments on time and paying off your balance in full will help you avoid paying interest.

  1. Auto Pay Your Monthly Bills

Set up your monthly bills to be paid automatically each month through your credit card account. Log into your credit card account and enroll in auto pay from your checking account.

  1. Don’t Use Multiple Cards

Limit the number of credit cards. There is no need to have more than one account. Don’t complicate your finances by multiple cards, balances, and payment dates.

  1. Avoid Closing Any Unused Account

Using your credit card longer adds to your reputation. Avoid opening multiple cards and closing them in case you’re not using them. Just one account will be enough. Keep your unused account open.

Follow the above-mentioned tips to manage your credit card responsibly. This way, you’ll be able to improve your credit score and avoid unnecessary debt.

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