1.) Start Young: When you are a wise and all powerful teenager you should apply for a credit card if possible. Try to get one with no more than $300 worth of credit and low fees and interest just in case of emergencies.
Do not just get the card and put it in a file. You need to use it once and a while. Pay it off every month, if you do forget, make sure you pay the fine and the remaining balance within 15-30 days and it will not show up on your credit.
2.) Long History: Even when you want to reach your hand through the phone and strangle the credit card companies for extortion, don’t. Keep the credit card open. The longer you have had a line of credit, the higher your score will be.
3.) No delinquencies: This is extremely important. They will show up on your credit history for 7 years, which will drag your credit score for a long time. Do not stress if you have only one or two. Especially if they are from a few years ago. Credit card companies actually like people who pay late fees and interest, that is where they make the most money.
4.) Stable Job History with stated incomes: Declaring everything on your W2 might incur more tax money to Uncle Sam, but in the end it will solidify your credit score and the amount of credit you can borrow.
5.) Do you own a home? This is a piece of solid equity that banks and financial institutions love to see on the record. Someone who owns a home will not just get up and runaway! Unless they are over there head in debt and are foreclosing on the home. However, the banks know about your situation long before you make that decision. They can see your current credit history and if you are late on a phone bill they can flag your account.
6.) Do not open a ton of store credit cards or apply for credit cards at once. Only try one or two a year. Do not have too many lines of credit open. If you have 20 department store credit cards open like Macy’s, Sears, Best Buy, etc then find the newest cards with no balances and cancel them. Having too many open credit lines is bad. Make sure they are the newest ones, closing old lines of credit will hurt your credit score.
In the end, it is a long process that takes at least 3 years or more to truly build a good credit score from scratch. Pay your bills on time and be wise with your money and you will never have to get sub-prime mortgage and go into foreclosure like everyone else.