6 Ways to Build Up Your Credit

It's the great Catch-22 of the lending world: To get new credit, you need a solid credit history. However, you can't build a credit history if you can't gain access to credit.

Now, as banks and credit-card issuers tighten their lending requirements, building that all-important credit history is even more challenging. Consumers with a credit score below 700 (on a scale of 300 to 850), for example, only have a hit-or-miss chance of getting approved for a loan, says Liz Pulliam Weston, author of "Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future." Consumers with no credit (say, an 18-year-old heading off to college) or bad credit (as a result of bankruptcy or some other major financial mishap) are even worse off.

But that doesn’t mean building up credit -- even in today's tough environment -- is impossible. Here are some ways that can help:

If no credit-card offers arrive in the mail and past attempts to get approved for one have ended in vain, then apply for a secured credit card, advises Curtis Arnold, founder of information site CardRatings.com.

With secured cards, applicants make a deposit – say, $200 to $500 – which serves as the credit limit on the account for the next 12 to 18 months. (Since borrowers are borrowing against their own funds, lenders tend to be more lenient about application standards.) As long as the cardholder pays on time and keeps their balance in check, the issuer typically promotes them to a regular, unsecured card.

One thing to note: Interest rates and fees on some of these cards can be painfully high. The New Millennium Bank Secured Gold card, for example, carries a 19.5% APR, a $59 annual fee and a $69.95 application processing fee. Others are more reasonable. Orchard Bank's Secured card carries a 7.9% rate and waives its $35 annual fee during the first year. When signing up, request that the card issuer reports your transaction history to all three credit bureaus, says Arnold. (Not all do.) To find a list of secure cards, visit CardRatings.com, as well as Credit.com.

Even a small loan shows up on a credit report, helping to improve a person's score, says Weston. And banks are still willing to offer short-term installment loans, which require a fixed payment each month, especially to those who offer up collateral or a co-signer. To find the best rates, shop around at community banks and credit unions. "Their rates are better, and they tend to look beyond your score," she says.

Alternate scores consider payment records for things like rent, utility bills and checking accounts, says Craig Watts, spokesman for Fair Isaac (FIC), which developed the FICO credit score formula. Fair Isaac offers the FICO Expansion Score, which automatically collects such data. Credit bureau Payment Reporting Builds Credit lets consumers enter records manually on its site or report them electronically through their bank's bill payment service. (PRBC charges $20 to verify a rental history and $15 to verify other types of accounts.) Other specialty reporting bureaus to consider: ChoicePoint for insurance and tenant reports and ChexSystems for checking account reports.

Before paying to build a report, make sure the lender you're considering is willing to use an alternate score, warns Weston.

Ask a family member or close friend to add you as an authorized user on their credit account, ideally one with a long history of low balances and on-time payments. Account-authorized users gain all the positive (and negative) history of the account. Your low score won't affect the primary cardholder's credit -- they can even block you from using the card. Just be sure to keep tabs on the account. Any problems -- say, a late payment or overcharged balance -- can hurt your score.

Economic woes aside, retailers traditionally carry less strict standards when it come to approving applicants for store charge cards. Compared to a MasterCard (MC)- or Visa (V)-branded card, it's less risky to offer credit solely within one store or chain of stores, says Scott Bilker, founder of money management site DebtSmart.com.

Just don't overdo it. Holding too many store cards can weigh down a credit score. And with rates that can top 30%, be sure to pay off your balance in full each month.

Pay bills on time, even if you can only make the minimum payment, advises Arnold. And keep balances low -- lenders like to see that you have lots of available credit, but that you aren't using more than 30% of it, says Bilker. Even if you pay off your balance in full each month, it's that end-of-statement bill that the credit bureaus see. (For more tips on raising your score, click here.)