From 0 to Excellent. How to build your credit score.

Credit score is a funny measure, it can fluctuate in the blink of an eye, specially if you don't pay attention to it. In this article you will find how you can go from zero to a good or excellent credit score when you don't have credit history. Everything you read here is based on my own experience as an expat living in the US.

First of all let's get to the basic with some simple questions:

What is your credit score?

Your credit score is a number that range from 300 to 850, and it represents your creditworthiness. In other words, the credit score it's a quantification derived from your credit history that financial institutions use to measure the probability that as a borrower you will repay your debt.

Why is credit score important?

When we think about credit score we tend to think that is only important if we want to buy a house and get a mortgage. Unfortunately, your credit score impact your personal finances more than what you think.

As Nerdwallet's contributor, Liz Weston, explains on her article Why your credit score is important "Your credit scores determine a lot more than the loans you can get and the interest rates you pay. Insurers use credit scores to set premiums for auto and homeowners coverage. Landlords use them to decide who gets to rent their apartments. Credit scores determine who gets the best cell phone plans and who has to make bigger deposits to get utilities". Aha! Have you ever deal with an insurance agent and try to get a better deal on your policy, your credit score might be telling them not to give you that discount you are looking for.

It's important to know that no credit score doesn't mean zero credit score

How do I build credit history and achieve a good score?

If you start from zero, which means you have never owned a credit card nor have any other type of debt, then the best way is to start small and simple: apply for a secure credit card.

My first secured credit card was with Wells Fargo. However, I would recommend you to ask your banker about secured credit card options, make sure it has a $0 annual fee.

Doing a little bit of research I found that Discovery has a good option with a $0 annual fee and $200 deposit. Other banks you could call are Bank of America, Capital One or Citi. At the end of they you have to choose the institution it better cover your needs.

A secured credit card requires you to deposit between $200 and $500 dollars on the card upfront and use it as you would a credit card so you can demonstrate the bank you are trustworthy and will pay your dues on time. Once you are able to build some credit using this card, you will be elegible for a regular credit card and the deposit will be reimbursed back to you.

In my case it only took 6 months to get a good credit score of 680 points, or "Fair", and be able to apply for a regular credit card.

My advice and the the secret to keep an excellent credit score is to treat your credit as if it were debit as much as you can, specially at the beginning. Once you move along on your path to financial literacy you will discover other advantages of credit but for now:

• Pay the balance of the secured credit on time - always. If you make a purchase today login into your account and pay the balance a couple days later. Befriend the automatic payment option and make sure you have enough in your checking account to pay the full amount, which will vary from $200 to $500 for your first secured credit card.

• Once you build a "fair" credit score, apply for a regular credit card. Be careful and do not apply for many at the same time since this will affect your credit score as well.

• Periodically ask your bank to increase your credit line. I try to do it once a year, it will take you a couple minutes and really the minimum you can do is to ask. Every raise or financial change you had in this last year will enable you to get a better credit line, appeal to your good credit history of paying on time to increase your credit line.

• Keep track of your credit score. You cannot change what you don't see and understand. Earlier in this article I mentioned your credit score is a number, that number is called FICO®. Several years ago banks adopted a way to show approximately what your FICO or credit score is for free. For the last couple of years I have use CreditWise from Capital One, you can sign up here, to make sure my credit score was in check. The most valuable thing about this tool is that gives you a ranking of the different factors that will impact your credit score, such as percentage of credit use, oldest credit line, recent inquires... Which will allow you not only keep your credit score in check but also know if you for example someone has open a credit card in your name... Because yes, those things happen!

The path to an excellent credit score requires some patience and lots of celebration with the small achievements! I hope this article allows you to start thinking on how important is your credit history and how to improve it.

Please, leave your comments below and if you take any of these steps, I would love to know more about your journey to financial mastery!