Posted by: John S Kiernan

Building credit from scratch doesn’t have to be difficult. The best way to build credit is to open a credit card, preferably one with no annual fee, and use it responsibly. That means paying your bill on time every month or simply locking it in a drawer. Just having an open line of credit that is in good standing will help you build credit.

But a clean financial slate is a double-edged sword. You could shed months, or even years, off your credit-building timeline and save thousands of dollars if you make the right moves. Or you could quickly find yourself with bad credit if you act irresponsibly.

Taking the following steps will help you keep the good credit-score ship sailing in the right direction.

1. Check Your Credit Report

Regularly reviewing your credit report is a good habit to get into. But it’s especially important to give it a look early on just to confirm that your biographical information is correct and there are no signs of identity theft. You might even find that you’ve already built a bit of credit – from being an authorized user on a family member’s credit card, for example.

The contents of our major credit reports also serve as the basis for all credit scores. So your rating will only ever be as good as your report is. However, you’re unlikely to even have a credit score if you’ve yet to open your first line of credit.

You can get unlimited access to your full credit report, updated daily, by signing up for a free WalletHub account.

Get Your Free Credit Report 2. Open the Right Credit Card

Simply having an open credit card account will help you build credit. That’s because all credit cards report account information to the major credit bureaus on a monthly basis.

But choose carefully. Plenty of cards have the potential to be more trouble than they’re worth. And blindly applying for credit is counterproductive. Each application results in a “hard inquiry” into your credit history, which can lead to temporary credit-score damage, especially when you apply repeatedly within a short period of time. Your goal should be to apply just once, for the card that offers the best terms for your needs and a high likelihood of approval.

We typically recommend seeking out a no-annual-fee credit card for either people with limited credit or students. If you don’t get approved for either, place a deposit on a no-annual-fee secured credit card, which offers the closest thing to guaranteed approval that you’ll find.

3. Strive to Never Miss a Payment

Payment history accounts for up to 40% of your credit score. This doesn’t directly disadvantage credit novices, as the percentage of payments you make on time is what matters most. But mistakes are magnified when you have limited or no credit history. For example, you’re batting just 83% if you’re late with one of your first six monthly credit-card payments. But making 599 out of 600 payments on time leaves you with an average over 99%.

There are two ways to improve. One is to keep your spending under control. Spending only what you can afford to repay in full each month on a credit line makes missed payments less likely and encourages responsible credit utilization. The other way is to set up automatic monthly payments from a bank account and scheduling them a few days after your paycheck comes in. This ensures that you’ll have enough money to cover the payment and helps you prioritize bills over unnecessary purchases.

Check Your Payment History 4. Build a Financial Safety Net

Budgeting is one of the oldest tricks in the book, though not a very popular one. But without a budget, you can easily find yourself stretched thin or falling behind on savings. Besides, the process doesn’t have to take much time or work. Budgeting for an hour or two every month will go a long way. If you need some inspiration, check out our top 10 budgeting tips and collection of budget templates.

When budgeting, make sure to carve out some room for emergency-fund contributions. An emergency fund gives you a financial safety net, which will catch you in the event of job loss or unexpected expenses that could otherwise wreak havoc on your credit. So aim to save two months’ pay per year, and increase your contributions until you put away a year’s worth of take-home pay.

5. Double Down on Credit & Use Loans as Needed

Once you’ve had your first credit card for at least a year, consider applying for another. Assuming you’ve used that first card responsibly, your credit score should have improved enough for you to qualify for a better deal. Plus, adding another line of credit will increase your total available credit. That will help your credit utilization ratio and, in turn, your credit score.

It’s also important to note that the diversity of your credit experience accounts for about 10% of your credit score. You never want to rush a decision as momentous as buying a car or house. It takes time to groom the credit standing needed for decent rates on a loan, for one thing. But if you’re ready to take that step, it could benefit your credit score in the long run.

6. Monitor Your Credit

No one has time to keep an eye on their credit report 24/7. Two-thirds of adult consumers haven’t even reviewed their credit reports in the past 12 months. But identity theft, financial fraud and credit-report errors can rear their ugly heads at any time. And the longer you wait to address them, the worse the symptoms will be for your wallet. That’s what makes credit monitoring so vital.

Many services, including WalletHub, offer free 24/7 credit monitoring. We’ll tell you whenever an important change is made to your TransUnion credit report so you can see if it’s accurate and take steps to fix the problem if it’s not. This can work wonders for your peace of mind, but it’s not a panacea. It simply makes it less likely that an issue — such as overspending or a mistake on your file — will go unnoticed.

Sign up for Free 24/7 Credit Monitoring 7. Concentrate on Consistency

Credit success is all about consistency. So spend and borrow within your means, and keep your accounts open and in good standing for as long as possible. If you don’t trust yourself to spend within reason and always pay your bill by the due date, you’re better off locking your card in a drawer. (Just beware that some credit card issuers will close your account after a long period of inactivity.)

You can build credit with no balance on your credit card. And there are many options with no annual fee to choose from.

8. Watch & Learn

Significant credit-score gains may be measured in months, but fluctuations occur daily. And WalletHub is the only website that offers free credit scores updated that often. Seeing how, and if, your credit score changes from day to day will tell you a lot about how the process works and what impact certain actions have on your rating. WalletHub’s customized credit analysis will also tell you exactly where you can improve and how to do so.

Get Your Free Credit Repair Estimate

You can and should apply this same principle to your monthly credit-card and loan statements. Keeping a close eye on these documents could help you identify inaccurate charges or patterns of overspending.

Final Thoughts

Now that you know how to build credit from the ground floor, it’s time to go out and do it. If you follow these tips, you’ll be setting yourself up for a brighter financial future and a whole lot of savings.

As you embark on your journey to top WalletFitness®, it’s also helpful to know what not to do. So check out WalletHub’s articles explaining why credit scores drop and the damage that derogatory marks can do.

Ask the Experts: The Building Blocks of Building Credit

In search of more insights into the credit-building process, we posed the following questions to a panel of personal finance experts. Check out their bios and responses below.

• What do you think is the biggest misconception that people have about building credit?
• What is the most common mistake that people make when trying to build credit?
• Do you think it’s easier or harder to build credit now than it was 10 years ago?
• What is the best tip you have for someone trying to build credit from scratch?

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• Archish Maharaja Professor of Business and Director of the Master of Science in Health Care Administration and Management Program at Point Park University
• Reilly S. White Assistant Professor of Finance, Endowed Professor of Creative Enterprise and Daniels Fund Ethics Fellow in the Anderson School of Management at the University of New Mexico
• Joseph F. Winter Assistant Professor of Accounting at Niagara University and Certified Public Accountant
• Michael Malmfeldt Assistant Professor of Accounting in the Harry F. Byrd Jr. School of Business at Shenandoah University
• Sonya Britt-Lutter Associate Professor of Personal Financial Planning at Kansas State University
• Thomas Warschauer Emeritus Professor of Finance and Director of Financial Planning Programs in the Fowler College of Business at San Diego State University
• Mark Gruskin Assistant Professor of Finance and Accounting at Penn State Lehigh Valley
• Thomas Stone Lecturer in Business at Penn State University Abington
• Daniel Goldberg Lecturer in Business at Penn State University Abington
• Elaine Worzala Professor of Real Estate in the Department of Finance and Director of the Carter Real Estate Center in the College of Charleston School of Business
• David G. DeBoskey Associate Professor in the Charles W. Lamden School of Accountancy at San Diego State University
• Roger Klee Assistant College Lecturer of Personal Finance at Cleveland State University
• David Dubofsky Professor of Finance in the College of Business at the University of Louisville
• Elizabeth Jetton Senior Adjunct Professor, California Lutheran University

Archish Maharaja Professor of Business and Director of the Master of Science in Health Care Administration and Management Program at Point Park University What do you think is the biggest misconception that people have about building credit? One must have lots of credit cards/loans to establish credit and look good. What is the most common mistake that people make when trying to build credit? Applying for lots of credit cards/loans and not being able to manage them, and paying only minimum amount just so they can build credit. Do you think it’s easier or harder to build credit now than it was 10 years ago? It is bit more difficult, as an individual has to go through more stringent credit/income check. Overall, this is better for everyone. What is the best tip you have for someone trying to build credit from scratch? Start with one credit card, with small open line. Pay off balances as soon as you can, do not pay only the minimum to build credit. If you do not have money, do not purchase on credit just because you can purchase now and pay later. Later never comes. Reilly S. White Assistant Professor of Finance, Endowed Professor of Creative Enterprise and Daniels Fund Ethics Fellow in the Anderson School of Management at the University of New Mexico What do you think is the biggest misconception that people have about building credit? Two myths have been remarkably persistent: first, that closing those old credit accounts is good for your credit score (it's not), or second, that opening a large number of accounts will boost your score (also not true). Credit can be viewed as a sign of risk -- and good scores equate to good personal risk management. From a banker's perspective, a large number of open accounts indicate a lot of potential risk -- not to mention how lots of credit inquiries can dent your score. What is the most common mistake that people make when trying to build credit? First, people avoid credit cards. Credit cards always get a bad rep -- but it's a stellar way to build credit, if you can pay it off each month. Many people feel, falsely, that they need to carry over a balance each month, or utilize a large portion of their available credit to build their score. Use the credit card, but pay it off each month -- then you don't risk exposing yourself to high interest rates. Another big mistake is that people forget to check their report -- a number of services offer free credit checks, which not only save you from the embarrassment of a “negative surprise” on your next journey to a car dealership, but also allow you to check for any mistakes. Everyone should check their report at least once a year, but for those building credit, more frequent checks are a good way of monitoring your progress. Do you think it’s easier or harder to build credit now than it was 10 years ago? For the conscientious consumer, credit building has never been easier. We can now search through, compare, and apply for a large array of consumer credit products. 10 years ago it was demonstrably harder to compare credit card offers, and now, online services (such as WalletHub) allow consumers a breadth of choice. Choice means competition, and competition means better products for consumers. The tools we have available to us -- from credit scores, to financial products and financial advice -- has never been bigger. That hasn't stopped many credit products from taking advantage of consumers who might be vulnerable or still building credit -- financial literacy becomes key. The role of finance, now more than ever, is to educate and help provide transparency for consumers. What is the best tip you have for someone trying to build credit from scratch? Be smart, do your research, and don't commit to anything you don't need. Having a good credit score is like having a good shield -- no matter what life throws at you, you're prepared for it.

• Start with getting a good secured credit card -- you won't have a big credit line, and the interest rates might not be as competitive as the ones given to high-credit score consumers. Start using it for regular, repeated expenses you're already paying for with a debit card or cash: food and gas, for instance. Before the due date, pay it off consistently, every month. Build good credit habits.

• Like above, but pay your bills on time. This goes for the little bills (like utilities), as well as the big ones -- like student loans. Paying these on time will help you build your score each month -- sign up for an automatic draft from your checking account, so you never forget.

• Keep expenses low and manageable. Often, the small things -- buying groceries, eating out, that expensive cable package -- add up over the course of the month, and make it tough to save money. Look at anything and everything -- no one should live like a pauper, but being smart with your money means looking at all the options on the table. What do you need to keep you happy and motivated?

• Don't fear a manageable debt load. Paying off a credit card, car loan, and student loan each month will build your credit fast -- but remember to keep your debt-to-income ratio low.

Joseph F. Winter Assistant Professor of Accounting at Niagara University and Certified Public Accountant What do you think is the biggest misconception that people have about building credit? I think there are a few misconceptions that people have regarding building a healthy credit score and being viewed as a “lower risk” when it comes to gauging a person’s wherewithal to pay. First, I believe that most people, when trying to establish credit, wish to keep a balance on their credit card account, and believe that this process would actually improve their score; I do not believe this to be true. I try to always pay my credit card balances monthly, and never carry over amounts to subsequent months if I can help it. I would not advocate paying high annual percentage rates each month just to carry a balance. If you can afford to pay it off, do so. I would believe lenders and credit evaluators would view this payment methodology approach as a much lower risk. Also I am not sure why people believe checking your credit score will somehow damage and send shockwaves to your personal credit report. By federal law, a person is able to check their credit score yearly for free from the three credit bureaus (Equifax, Experian and TransUnion), so a “soft pull” like this, initiated by the individual should not hurt someone’s credit standing. However, a “hard pull,” for example from a bank, credit union or other viable lender in conjunction with an application for a line of credit, additional credit card or a new vehicle purchase could demonstrate someone applying for many sources of credit, which would be viewed negatively or less financially stable. The last biggest misconception that I think exists is regarding someone’s education level. If someone has a PhD or is a high school graduate, none of this data will come into play in reference to that person’s credit score. If the person is a college graduate, perhaps they have student loan debt, which we will get into about building credit from scratch, and this could help to establish credit; however, education standing, race, gender, marital status, national origin, religion and amount of financial assets have no bearing as factors for a creditor’s scoring system. What is the most common mistake that people make when trying to build credit? I think there are a number of common mistakes that people make when trying to build their credit. The first is not being aware of their annual percentage rate and whatever type of fees or penalties may be charged against their account. Interest rates and fees vary widely between credit cards, lines of credit and personal installment loans. It is critically important to know the terms, as well as any prepaid finance costs that may apply. One approach could be to shop for the best rate for a loan, and see what credit card issuer will be the most beneficial to the prospective customer. I think another common mistake is closing a credit card account. Sometimes it might be just a great personal feeling of accomplishment, of finally paying off a large or old balance on a credit card, and that is a significant event and not to be randomly dismissed; however, don’t just close the account and also don’t just close an account that has not been used in a long time. Taking this approach of closing these types of accounts could actually reduce someone’s credit utilization ratio, as well as change the length of a credit history. Another common mistake that some people might make when trying to build credit is to “max out” their available lines of credit, whether it is from a credit card account or a personal line of credit. Having no available credit may be worse than not having any credit at all. By taking this fully maxed out approach, your liquidity is non-existent. Furthermore, borrowing, or more likely spending up to the maximum credit limit will most likely impact a person’s credit utilization ratio, and if one starts to struggle to make minimum payments, this too will negatively impact a credit score. Lastly, one last piece of general advice, either from the stage of building credit or after achieving a glowing credit score, people always should be careful about co-signing for a loan, line of credit or credit card. It may sound like a noble gesture and the right thing to do to help out a family member or friend who needs credit, but does not have the standing on their own to obtain it. But by being a co-signer, you step into their shoes, and if they can’t repay their obligation, then the co-signer becomes the responsible party, probably without even obtaining the benefit that the primary obligor enjoyed through their purchase. Do you think it’s easier or harder to build credit now than it was 10 years ago? My initial response to this question is that I believe it is easier to build credit today than it was 10 years ago, in 2007. However, to begin my assessment, the calendar year 2007 was the start of the Great Recession, the financial crisis and the sub-prime mortgage meltdown. The Great Recession caused severe financial pain to household earnings and household wealth, both in the U.S. and across the world. A number of large banking and financial services firms either merged or went out of business, as result of the Great Recession. Credit was tightly monitored because of the credit crisis; the collapse of the overall real estate market tremendously affected the market for mortgage backed securities and collateralized debt obligations. Fast forward to April 2017 and to current day times, the IMF published a report documenting that the U.S. has an elevated level of corporate debt today, which is starting to worry banks at a global level. Our debt level is back to where it was in calendar year 2007. And the U.S. is not alone; the U.K. also has high unsecured consumer debt and high mortgage debt, both at the same time. So it seems that the debt per capita has been continuously increasing since 2007, while the mix of debt has changed slightly compared to 10 years ago, with mortgage debt falling by 5%. What is the best tip you have for someone trying to build credit from scratch? If I was trying to build credit from scratch, I would consider a few different approaches. First, I might consider opening a secured card. A secured card would require someone to provide a deposit attached to the card, and have a fairly low credit limit assigned to the card. Start by making small purchases, then paying these off on time and in full. This could be a way for someone with no credit or someone that has just emerged from bankruptcy to begin the credit building process. Next, I may consider applying for a store credit card. Applying and obtaining a store credit card could help the credit builder save money at their favorite store, while building up their credit score. These store cards usually will come with a lower credit limit, but a higher than normal annual percentage interest rate, so it is important again to try to pay the balance in full, without getting pinched on costly interest amounts. I would tend to stay away from asking a close family member or friend to become an authorized user on their credit card, but it is an available option. If this option were taken, the biggest concern is to use the card responsibly. In addition, if I was the primary obligor on the credit card, I may even consider asking for a cash deposit as collateral for the privilege of riding my creditworthiness, and the use of this card. Lastly, if the college graduate mentioned earlier has student loans as a credit obligation, I would definitely be paying the monthly amount on time, and perhaps paying a little something extra to try to get rid of the debt as soon as possible. Paying off the student debt early can have potential give and take. The creditor has less interest to pay in the long term and also can think of something bigger and better to purchase, such as a home or new car. It is critical to be mindful of and to take care of your credit score. Michael Malmfeldt Assistant Professor of Accounting in the Harry F. Byrd Jr. School of Business at Shenandoah University What do you think is the biggest misconception that people have about building credit? One of the biggest factors in building credit is time. But even people who know that don’t really comprehend just how much time is required to be considered “established” in terms of credit history. As an example, I’m nearing middle age and have had some kind of credit for nearly 20 years, and I still get dinged (slightly) on my credit report for the length of time I have had credit accounts of any kind. What is the most common mistake that people make when trying to build credit? The biggest mistake “credit-conscious” people make when trying to build credit is not using credit enough. It’s easy to get scared of credit from anecdotal horror stories or previously bad personal experiences. However, your credit profile doesn’t improve from simple neglect and the passage of time. Not missing payments is vital, but you have some payments to make as well. Do you think it’s easier or harder to build credit now than it was 10 years ago? It’s definitely harder to build credit now, but only because the credit markets are a little bit tighter. So, it’s a little bit harder to get credit, and as mentioned above, the only way to build credit is time, plus positive credit history. However, for all intents and purposes, the process hasn’t changed much in the last decade. What is the best tip you have for someone trying to build credit from scratch? You must have a good amount of credit accounts open and active, preferably all with perfect histories for a long time to have “excellent” credit, in general. Knowing this, you shouldn’t expect an excellent rating right away. However, you can get your credit profile started with no history and a $250 limit credit card today, and have enough credit to do everything that you want to do, including purchasing a car and/or house, within a few short years. This is, of course, assuming you have sufficient income to justify borrowing for those things. The difference between having the “good” rated credit history that you can get with perfect payments in a couple of years, and the “excellent” rating that might take a decade or more, would generally only be your interest rate, and not whether or not you qualify for the loan at all. So, you might have a slightly higher monthly payment and pay more interest in the long run, but you should be able borrow what you need within a few years of trying to establish yourself. The above statement also applies if you are re-establishing credit following bankruptcy. The credit score algorithm is fairly complicated, but some more things you should keep in mind when endeavoring to build your credit are:

• Debt-to-income ratio -- creditors will look at how much you owe in general, and compare that to your income when determining whether or not to approve you for credit. Depending on why you are borrowing, there may be hard limits on how much you owe compared to how much you make in order to get approved. Having a debt-to-income ratio that is out of whack can short circuit a credit application, even with a high credit score and perfect payment history;

• Applying for credit can itself hurt your credit score -- most of the time when you apply for credit, the potential creditor will make what is called a “hard inquiry” on your credit. This is basically a mark on your credit report that says you were trying to get a loan of some kind. One inquiry is not a big deal by itself, but each inquiry can ding you score as much as 10 points in the short term, so the bigger issue is when you apply for credit at a bunch of different places at the same time. Luckily, these are temporary dings and will drop off within a year;

• Student loans are not the same as other credit, be very careful with them -- all kinds of student loans are currently afforded special bankruptcy protections under United States law, which make it very nearly impossible to ever have them discharged. Do not use student loans to build credit. They will not help your credit score until you are paying on them, and at that point, they will be more harm than they are worth (from a credit standpoint). My advice to potential students and parents is to never take out more student loans than is absolutely necessary. If at all possible, don’t use them for anything but tuition and fees, and don’t do that if you can help it.

Sonya Britt-Lutter Associate Professor of Personal Financial Planning at Kansas State University What do you think is the biggest misconception that people have about building credit? We like immediate responses. When we have to wait months or sometimes years to build or rebuild credit, it can be frustrating. I frequently hear concerns about people not wanting to check their credit report, for fear of damaging their score. We have not done a great job of educating people to understand that they can and should check their credit report often. It's confusing when they hear advertisements for the not free, credit "report" or score agencies. Consumers have a difficult time differentiating the government-mandated AnnualCreditReport.com from other sources. What is the most common mistake that people make when trying to build credit? Not being focused. People may try to attempt too many strategies at once and never really accomplish anything meaningful. It is best to resolve one issue at a time versus trying to fix everything at once. What is the best tip you have for someone trying to build credit from scratch? Get a credit card without an annual fee, and use it only to buy fuel for your car. If you don't have a car, pick another relatively small expenditure that you regularly make a couple times each month. Immediately mentally deduct the amount from your checking account and set up automatic payments with the credit card company to pay the full balance each month. Thomas Warschauer Emeritus Professor of Finance and Director of Financial Planning Programs in the Fowler College of Business at San Diego State University What do you think is the biggest misconception that people have about building credit? That having more cards means a higher score. What is the most common mistake that people make when trying to build credit? Opening too many accounts and not focusing on the key factor of maximizing the difference between credit lines and amount borrowed. Do you think it’s easier or harder to build credit now than it was 10 years ago? I can’t make a statement about what it was like ten years ago because that was not an ordinary year, but compared to 15 years ago, now is easier, in the sense that individuals have more and better ways of getting started, and more difficult in the sense that a higher proportion of people are living closer to their means or above their means. What is the best tip you have for someone trying to build credit from scratch? Start with a credit union car loan and a basic credit card arranged from a store, use it sparingly and pay early and in full. Mark Gruskin Assistant Professor of Finance and Accounting at Penn State Lehigh Valley

What is the biggest misconception that people have about building credit?

That carrying a balance improves your credit score. By doing this, you are paying a very high interest rate, and it doesn’t benefit your credit score. Also, credit rating agencies look at debt outstanding as a percentage of the credit limit.

What is the biggest mistake that people make when trying to build credit?

The belief that checking a credit report will hurt their score.

Do you think it is easier or harder to build credit that it was 10 years ago?

I think it is more difficult. One contributing factor to the financial crisis was over-valued real estate relative to the amount owed on it. One view of this is that the credit rating agencies did not fully understand the risks. A natural outcome of the lessons learned is a more stringent view of debt.

What is the best tip you have for someone trying to build credit from scratch?

Keep the debt you are carrying low relative to your credit limit. The best way to do this is to moderate spending, so you can pay balances in full.

Thomas Stone Lecturer in Business at Penn State University Abington

What is the best tip you have for someone trying to build credit from scratch?

To the extent possible, set up all of your bills to be paid automatically from your checking account or as a charge to your credit card, so you never miss a payment. The credit card option can also build up rewards for each use of the card. However, if you choose this option, make sure that the credit card is paid (in full, if possible) each month by setting up an automatic payment from your checking account. Over time, prompt payments to creditors will give you a very strong credit score.

What is the most common mistake that people make when trying to build credit?

The most common misperception is that use of credit can hurt the credit score. If you don't use credit, credit rating agencies cannot evaluate your creditworthiness. You must use some credit to be evaluated. Start small with an amount of credit that you can easily handle with your budget, and make sure that you manage it responsibly by paying off your creditors on a timely basis. I recommend setting up automatic payments to ensure timely payments, which will strengthen your credit score.

Daniel Goldberg Lecturer in Business at Penn State University Abington

What is the most common mistake that people make when trying to build credit?

The biggest misconception is that if you don’t have any credit cards and/or pay everything with cash, you'll have no debt, and therefore have perfect credit. However, if you do that, you'll have a zero credit rating.

The most common mistake is that people often lose sight of credit limits and before they know it, they're in "over their heads." If a person starts small and doesn't overextend themselves, and makes more than the minimum payments on time each month, they'll find both their score and limit raising. Additionally, make sure you pay your other monthly bills on time.

Do you think it’s easier or harder to build credit now than it was 10 years ago?

I think the rules are the same. Keep your eye on how much credit you have, how much you spend, and pay your bills on time. They hold as true today as they did 10 years ago.

What is the best tip you have for someone trying to build credit from scratch?

Start small. Get a card with a small credit limit, pay more than the minimum each month (all, if you can), and the credit card companies and banks will begin to add to your limit. In order to get your initial credit card, make sure you begin to build a relationship with your bank. Once they get to know you, see your deposit and salary history, you'll be in an easier position to get credit. Also, make sure you pay your other bills on time as well (electric, cable, gas, and others). Being late on those bills will negatively impact your ability to get credit.

Elaine Worzala Professor of Real Estate in the Department of Finance and Director of the Carter Real Estate Center in the College of Charleston School of Business

What is the best tip you have for someone trying to build credit from scratch?

Take out a credit card in your name. Use it to pay for things, but pay it off each month. Do not let balances get high. And, make sure you pay on time. Rent an apartment so you can show you pay your rent on time. Buy your car with a loan, but again, make sure you make the payments -- and if you can, pay it off early, that looks good as well.

Don’t have too many credit cards. The credit agency has to assume you might use any card that is open. Be sure to close any credit cards you are not using.

David G. DeBoskey Associate Professor in the Charles W. Lamden School of Accountancy at San Diego State University

What is the most common mistake that people make when trying to build credit?

• They close credit cards they have open for a long time. Tip: keep long credit history cards open, close shorter-term ones.
• They apply for new credit cards, car loans and have too many hard inquiries over a short period like less than 30 days.

What is the best tip you have for someone trying to build credit from scratch?

• Open up credit card on college campus and pay it off every month.
• Open store card, as they're a bit easier to open.
• Take out small personal loan or car loan and have parent co-sign and then payoff quickly. Repeat if needed.
• Have a job with verifiable income and W-2 history. Keep same job as long as possible. Creditors like stable job history.

Roger Klee Assistant College Lecturer of Personal Finance at Cleveland State University

What is the best tip you have for someone trying to build credit from scratch?

I teach personal finance at Cleveland State University, so students often ask me for tips. Often, they are thinking about a hot stock tip. With further education about efficient markets, that question might no longer be asked as often. Even if I did have a hot stock tip, the student would need to have access to money in order to profit off of that tip. The advice I give instead is that they should use their time as a college student to start building their credit. Building one’s credit does not require an individual to have significant resources, and can take some time. Students have little money and years until graduation, so this is the perfect fit. Upon graduation, they will want to purchase vehicles and houses, and trying to build up one’s credit quickly at that time can be problematic.

Assuming that the student can be financially responsible, my advice is to get at least one credit card without an annual fee, and use it to make your regular purchases, such as lunch at Subway. Only buy what you have the money to pay for right now. If the student pays the card in full every month on time, they will be building a positive credit history and should also be getting cash back from the card, which effectively is like buying everything on sale. No interest will be paid if the card is paid in full. Paying on time is important and fortunately, doing so is easier than ever. Most cards will allow you to setup automatic payments, so you can never be late. You can also use an app like Google Calendar to setup reminders for yourself to make your payments.

I have found that most students use cash or debit cards to make their purchases. Unfortunately, neither of these are using borrowed money, and thus are not establishing a credit history. You also don’t get any cash back from using them, so they are sub-optimal. They can also make it harder to keep track of spending, since you would need to record every item purchased if you used cash. Using credit cards will keep a track of purchases and a student could then use a free app to quickly and easily manage their accounts.

Students really appreciate this advice, and I bring it home when I compare triplets who are identical, except for their credit scores. They have identical jobs and make the same amount of money. They now want to live next to each other in three identical houses. Triplet 1 has good credit and pays the least amount. Triplet 3 has bad credit and can barely get a loan. He pays hundreds of dollars more a month for the same house. It’s clear that good credit can save you thousands of dollars in interest, and it does not require any significant wealth to start building credit today.

David Dubofsky Professor of Finance in the College of Business at the University of Louisville

What is the most common mistake that people make when trying to build credit?

The biggest misconception people have about building credit is that they think they have to pay interest. There are many good ways to build credit without paying interest, or by paying a minimal amount of interest.

For example, you can buy a reasonably low-priced item (say, a small new piece of furniture) from a retailer that offers “no interest for 3 months” credit terms. Just be sure to pay in full before three months, and you will have established credit and paid no interest. I emphasize that the item be “small” and/or “reasonably low-priced” to ensure that you will be able to pay for the item in full on time.

Or, get a credit card and be sure to pay your bill in full every month. Again, credit is established and you pay no interest. Be sure that your credit card has no annual fee, and if possible, get one that offers a cash back feature on your credit purchases. The credit card offered by Target is a good example of a no-fee card with a 5% cash back feature. Keep your credit card purchases small and within your budget to ensure that you can pay off your credit card bill in full every month. However, recognizing that you may not be able to pay your bill in full, you should find a credit card with the lowest interest rate you can find. You don’t want to have unpaid credit balances on which you are being charged 12-18% interest.

What is the best tip you have for someone trying to build credit from scratch?

A good way to establish credit while paying a very reasonable amount of interest is to borrow to buy a car from a dealer using a low-interest (1-2%) loan. Make your monthly payments on time. Before you bring up the issue of financing, find the car you want and agree on the purchase price. Then, haggle for that low-interest loan. Be sure you can afford your monthly payments.

Finally, never miss a payment or be late when making a payment. There is no worse way to destroy credit than to be late when making a payment, or missing a payment.

Elizabeth Jetton Senior Adjunct Professor, California Lutheran University

What was your strategy for rebuilding your credit?

Strategy to rebuild credit: strategy was combined effort to build reserves so you are not going to get back in the situation of relying on credit cards to pay for things or emergencies; talk to the companies to ask for their best plan for paying down debt and preserving credit; use credit cards intentionally with the money already set aside to pay the debt.

How long did it take you to rebound to fair, good and excellent credit, respectively?

How long did it take? This was a very long time ago - not sure. It doesn't take as long as one might think. R having debt and showing consistant on time payments, and limiting the number of inquiries and number of credit cards and debt payments (like car payments, mortgage, store cards, etc.)

What is the best tip that you would give someone who is currently working to rebuild his or her credit?

Best tip to rebuild?

Your best strategy is to find a good job and earn money. If you need to invest in education to increase your possibilities, look for ways to do that. Investing in yourself and in your earning potential is the best long term strategy. Regular earnings is the key to getting out of credit trouble and building a financial foundation.

Image: Lise Gagne / iStock.

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