How to Build Your Credit Without Going into Debt

Many people, including financial professionals, believe that the only way to build your credit is by going into debt.  This is simply not true.  It is not necessary for an 18 year old man or woman to open up a credit card in order to build his or her credit.  There is no need to simply take out a loan for a car in order to qualify for a mortgage later. 

Our financial culture worships the FICO score.  Our culture believes that our FICO score is a good indicator of our financial well-being, but it has nothing to do with that.  Here are the factors that go into calculating the FICO score: 

• payment history on outstanding debts.
• the amount of debt you have.
• the length of your credit or debt history.
• New Credit (this is the most ridiculous one.  you can actually be penalized for not having new credit lines opened!)
• The types of credit you use (secured, unsecured, blah blah)

Nowhere does this score factor in your net worth!  You could be a self-made millionaire that has 10 million dollars sitting in the bank and you have not used credit for 10 years, chances are that you won’t even HAVE a FICO score!  Now you might say, “well someone with 10 million dollars doesn’t need a loan”.  That’s exactly my point!  If you save your money and pay cash for things, you will not need to worry about a stupid credit score. 

You might not be able to save up enough money for a house anytime this century, but there are alternative methods to qualifying for a mortgage other than looking up your credit score. 

1. Pay your rent on time for 2 or more consecutive years
2. Pay your utlities on time for 2 or more consecutive years
3. Save up for a down payment — at least 10% – 20% percent, but more is better.
4. Show stable employment and boost your income through side businesses and recieving certifications and continuing education at your job. 

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