How to responsibly build credit

There is a big difference between having no credit and having bad credit. Bad credit means that you've used credit to purchase things and then you didn't make the payments on time. Having no credit means you've never had a credit card or formally borrowed money before. In theory, this is a good thing. I don't want you to borrow money and I don't want you to go into debt, BUT having a credit score is important when you need to make a big purchase, like a house. So how can you build credit responsibly? Watch the clip below, courtesy of Fox 59, to hear my surprising answer.

You will need a credit card to establish credit. Trust me, I don't like it anymore than you, but it really is the only way to establish credit. But here is the thing I don't want you to do, I don't want you to run around getting a bunch of store credit cards and wracking up debt in the name of establishing credit.

The biggest chunk of your credit score (35%) is calculated by your payment history (see the other categories here). You don't need thousands of dollars on a card in order to establish credit, you just need to make your payments on time. So here is the plan, I want you to get a secured credit card. A secured credit cards means that you mail a check into the credit card company for a specific amount and that is the limit of your credit card. This will prevent you from overspending on the card. I'd also like to suggest that you only put one category of spending on the card. For example, only use the card for fuel purchases. This will simplify your records and prevent you from using the card too often. I also don't want you to use more than 50% of your limit. Again, this will prevent overspending.

This is the best way to establish credit when you have none. It is the slow and steady route and can take about a year to establish a good score but if you plan ahead you can establish credit without going into debt. If you don't know where to start looking for a card, I recommend Card Hub where you can compare multiple cards to each other. Remember, financial wellness is the goal here. I want you to establish credit, but I don't want you back here in 6 months searching 'how to get out of debt.' Be responsible, take my advice, and you can establish credit and avoid the financial stress of debt.