How to build credit

6 Replies

I’m 22 and really want to invest in rental properties but I have no credit and don’t know how much I should have save to begin with. What’s the best way to build credit and how much should I have saved to begin with ? Please help

@Tyre Foote

I like your ambition. Not many 22 year olds I know want to secure their future. Mainly its just Jordan sneakers and girls, LOL. Anyway, I was in your position when I was around your age. I kind of messed up my credit by not paying on time (BIG NO NO when trying to build up credit).

I joined a credit union and got a Secured Visa Card with the credit union and started making small purchases that I could easily pay the whole thing off when it came close to the end of the month.

A Secured Visa Card works by you using your own money as a line of credit. Meaning you give the bank about $500, and they give you a credit card with a max limit of $500. You make purchases with that card and then pay everything off by the end of the month. The credit union will be sending reports about your habits to the 3 credit bureaus, within a year or two, you will start seeing your score start to rise.

(Since you live in Allentown, PA you can join Credit Unions like People First and First Common Wealth)

While you are waiting for the score to rise, you start to grind, hustle, scrimp and save like your life depended on it. You put aside 20-30% of your paycheck into a savings account, you take food from home to work, you don't go clubbing unless someone is going to pay for you, you ride your bike to work and other places if the weather permits, you side jobs like tutoring or Uber. Once you have about 15K in your account, and with at least a 700 credit score then you are ready to start investing.

Sidenote: 15K is not exactly the ideal figure I want you to hit, it could be almost any amount but I feel safer with 15K.

Happy Investing.    

@Brian Adzadi Trust me that’s all I use to think about too , I just matured up at a young age lol but thank you so much you don’t understand your reply took a lot of weight off my shoulders. I actually have first common wealth so I’m definitely going to head over there today. Thank you for your advice.

Have you tried applying for a credit card with a credit card company like capital one or citi? I got denied by all the major banks at your age, but found out that credit card companies had much different standards than banks. use this to build credit first. your score is determined by many things including % utilization, length of time accounts are open, on time payments etc. many credit card companies will give you a credit monitoring option from your account. it will go in more detail.

your first step is open that new account, and pay it off in full every month. then every year or so, ask for an increase. the higher your limit, the lower your % utilization which increases your score.

if you cannot get a traditional card, then a secured card is your next best option

I would first read up on how the credit bureaus calculate one's credit score. There are a lot of resources online and my personal favorite is Reddit.

Ultimately, building a good score is mostly dependent on paying all your credit cards/debt on time. Credit cards are dangerous in the sense that they can greatly increase your score by having large credit limits. But at the same time, they can ruin you if you don't pay them off. With enough discipline, you should be able to use credit cards to your advantage and even take advantage of sign-up bonuses. I abuse credit card bonuses and I haven't paid for a flight and hotel in years.

Also, sign up for creditkarma or anything similar so you can track your credit score.

Good to see young people that are awake when it comes to building wealth. RE is probably one of the last avenues for people that are staring with little money,  lot's of determination, decent IQ, hands-on and patience. Good luck. Short answer is find someone that is willing to help you buy that first investment. Someone that a lender will be willing to loan the money to, that will co-own with you and let you reap the financial upside. Hold as a rental for a year or two then refinance in your name only. If done right with your sweat equity, hard work and the investor's trust in you, it will most likely put you in a position to buy from then on yourself or with a co-investor in it for a fair return on their money.  I did that with a relative about 10-12 years ago and they are now well on their way to real financial independence while bringing me great deals. I still co-sign on some deals but they have become bigger and done as a strategy that both of us profit from. 2018 will see us building an 8-unit from the ground up. Another option is find a property that someone is willing to sell to you through  a lease-purchase option or a rehab where your time and sweat equity is given a $ value then splitting  the profits when sold. Building credit and saving for the cost to buy in can still work but can be a slow and difficult process that requires everything to go right over the course of a number of years. If you really want this your greatest assets will be your enthusiasm, sincerity, transparency and selling an investor on you and the investment.

You should also be doing everything you can over the next few years to increase your income. If your employer has opportunities for you to advance use the time to do so. If opportunities do not exist concentrate on changing your career path to be able to increase your income. Full time employment with high income is a key to successfully investing. It can be done other ways but a full time job that pays well is by far the easiest method to support investing.  

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