(Note: They will try to sell you ongoing credit services.  Simply opt out of these services, so everything will remain free, or if you like the idea of someone monitoring your credit activity, by all means, sign up.)

I don’t have no credit.  (I am fully aware of the poor grammatical structure.)  I didn’t even have bad credit.  Surprisingly, I had a credit rating in the upper 600 range, which qualifies me for a lot of loans and credit cards.  Don’t worry–I’m not going to rush out and load myself up with monthly payments, but it is comforting to know I’m not in negative credit land (if such a thing were possible).
It’s easy.  It’s helpful.  It lets you know where you stand in the greater financial world.  A free credit report.  For most of us there is this lurking hulk of information that controls our buying/spending, and we don’t even know what it is.  Check it out in the sidebar at loanshrimp.com.

Next step…Applying for a credit card.

1. Assess your credit situation – If you are ever going to build your credit, it will first be necessary to establish what credit situation you are in.  Wasting money is certainly not going to get you anywhere, so I will only mention the free stuff.  There are many free credit reporting services out there, if you are willing to take the time to apply.  All you have to do is give them your information, and they will send you a report of your credit.  Watch out that afterward you don’t incur charges for those that make you opt in to a 30 day free trial.  Here is one of the myriad of free credit report sites out there.
2. Establish financial stability – Building your credit isn’t just about a score, it is about making you look loan worthy.  This doesn’t mean fixing your hair just right and wearing the right clothes–it means giving lenders a financial picture that they can look at and trust.  This begins with a bank account.  It is a simple step, and quite honestly it will be difficult to exist in our society without one, but you need to get a checking account in order to look loan worthy.  Think of this like the education section of your resume; it is not as important as your work history, but something needs to be there.
3. Show me the income – The troubling thing about the entire credit system is that you have to get credit in order to build credit.  Sounds like getting a job right?  Well, you are never going to get a loan of any kind unless you can convince the lender that you can pay it back.  This means showing income, which is slightly different that making income.  Lenders can typically see your income in three different ways, tax returns, bank statements and payment stubs.
   If you are a W2 employee, showing your income is very simple, and for most lenders 6 months pay stubs (or less) will be considered acceptable.  If you are self employed, this is a little different.  Those who are self employed will typically need to show the previous two years of tax returns or bank statements in order to establish financial viability.  Either way, this should always be kept in mind as you are building your credit portfolio.  The final way is to show your payment stubs, but this is only necessary if your previous year’s tax return does not show enough income (if you were at a lower paying job, etc).
4. Establish lines of credit – A line of credit is anything that you make recurring payments on.  Credit cards, cell phone payments, car loans, payday loans, pawn shop loans–these are all lines of credit.  Anything you can point to that will show on a credit report (paying back mom and dad for college will not count here) will help you as a line of credit.  You must keep this in mind in building your credit resume because it only counts if it is in your name.  My wife comes from a very wealthy family, but she cannot get a credit card to save her life.  We have had to build her lines of credit, because everything is in her parent’s name.  Students and young people keep this in mind – if it is not in your name it will not build your credit.
5. Get a credit sugardaddy – Ultimately, the key to any financial situation is getting a sugardaddy.  A credit sugardaddy is someone who has great credit who is willing to let you piggyback until you can likewise have good credit.  Just have them cosign for a credit card or loan, and this will also help you build your credit along the way.  Keep in mind though: this will only take you so far; in order to really build your credit (i.e. in order to become a sugardaddy yourself), you need to get a loan of some kind that is solely in your name.  Points 6-8 are some ways.
6. Apply for a student credit card – Students, you are in a unique situation because at this point in your life credit card companies realize that you likely have little to no credit, but soon will, along with lots of moola, because of your education.  Use this time wisely; get a student credit card.
7. Apply for a secured credit card – A secured credit card is one that has security backing of some kind.  These types of cards can be obtained at places like credit unions, which give you a card and use your money to back the card.
8. Apply for a store credit card – Retail stores are dying to give you credit.  Why?  They make a killing off of you after you get it.  This is an awful trap to fall into (for more read our upcoming article The 7 great financial disciplines).  We are going to assume that you are smarter than the person who gets the Banana Republic card, then buys $3000 worth of overpriced clothing.  You need to use the temptation strategies of retail stores to your advantage.  Bottom line, these are easy cards to obtain, so if you are having trouble building credit, get a store card.
9. Make some payments… ON TIME! – One wouldn’t think this is rocket science, but if you want to get good credit (i.e. show credit worthiness) MAKE YOUR PAYMENTS ON TIME.  You need to show a history of being able to make payments, so once you get that store card, or student card, or line of credit, build a small balance and make some payments… ON TIME!
10. Be patient – Just like a job resume, building your credit resume doesn’t happen overnight.  Be diligent and patient.  It will likely take at least 6 months of making payments, showing income, and building credit lines in order to start seeing some results.  In six months, start again with step 1 and see where you are at.

Give me some feedback and let me know if this is of any help to you.

1.    Be disciplined… Never pay interest – how on earth are you ever going to make money on credit cards if you are stuck paying their ridiculous interest rates.  Most charge between 13% and 19% per month and this is for people who have not missed payments… how is this legal?  Many people get sucked in through 0% interest for a certain period of time, but then the build such a large debt load that they cannot pay it off before the introductory period ends and find themselves paying out the wazoo.  The name of this game is to stay disciplined.  PAY OFF YOUR CARD EVERY MONTH and don’t get charged interest.  This is the first and foremost principle in using credit cards to your advantage.

2.    Never pay annual fees – why pay annual fees when many of the best cards out there don’t charge them?  Typically if a credit card company is charging an annual fee it is saying, “suckers, please apply.”  There are too many great credit cards out there that have no annual fee and pay great rewards.  Check out our articles Top 5 rewards cards w/ no annual fee and Top 5 cash back cards w/ no annual fee.

3.    Don’t get fooled by miles cards – many of the miles cards are really a suckers bet and here is why: you don’t get a payoff until after you have like 40000 miles.  At 1 mile per dollar you do the math – even at 5 miles per dollar.  Most of the good points cards can also be used to get airline miles, but you are not stuck with only getting miles.  To make matter worse, miles expire – points don’t and neither does cash back.

4.    Think percentage, not miles, points, or cash – this is where even smart people go astray, they focus on how many points, or miles, or cash back that they get rather they looking at the percentage that they are getting back in relation to how much they spend.  Who cares if you are getting cash in your pocket, or gift certificates to places that you shop at anyway, the main focus should be how much you are getting back by spending on that credit card.  As I have already mentioned miles cards are generally for suckers and this is one of the main reasons, they don’t pay nearly as much as cash back and points cards.  See the aforementioned links to related articles.  You should aim for around 5% back in the first 12 months and 1-2% after that assuming that you have good credit.  If not, check out Top 10 ways to build your credit resume.

5.    Spend spend spend – the only way you get rewards is to spend money on the card.  Once again, refer to step 1 and DO NOT EVER PAY INTEREST by maintaining a balance, but spend lots on the cards.  Get creative, many times I have gone on trips with friends and for “convenience” sake I pay for everything and then they just pay the total after we return.  Travel with a group overseas once or twice and you will find a veritable fortune in cash back or gift cards when you return.  The point is, if you are going to spend it anyway, why not put it on your card and then pay it off at the end of the month?  It doesn’t matter if it is a stick of gum, use your card.  This will also help with step 6.

6.    Get organized – one of the great ancillary benefits of using your credit card for all your purchases, is that it will enable you to easily organize your finances.  It is like having a personal secretary that itemizes your expenditures every month.   It is worth using credit cards for all your purchases just for this.  Use this to track your spending and better organize your budget.  In the game of personal finance, no one saves or makes a dime without being organized.  Also, check out Best free tools to organize your personal finances.

7.    Return to step 1 – you must be diligently disciplined to use credit cards to your advantage.  If you don’t keep this rule in mind it will come back to bite you.  The game for the credit card companies is to get you to forget, or not care that you are maintaining a balance.  PAY YOUR BALANCE OFF EVERY MONTH.  In remaining diligently disciplined you will also build your credit making it easier to get approved for great rewards cards.

We will be providing tips and tricks as well as resources that you can use to stay ahead of the game financially.  Our goal is to make credit your friend – to enable you to use your good credit to build wealth rather than strip it away.  We give our readers tips and tricks that are designed to aid in the process of building good credit and using it to your advantage.

The staff behind loan shrimp is comprised of a former loan officer (who hated the sharky industry), a consumer formerly in heavy credit card debt, and a just out of college professional who has never had a credit card or line of credit in his life – a perfect demographic to help you navigate through the troubled financial waters (an ex-pro, an ex-flunky, and an up-and-coming learner).  Our goal is to share our experiences and financial insights that can help others avoid the all the sharks that lurk out in the vast financial ocean.  Happy swimming.