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#JenniferWaters

Personal finance columnist

We’d all like to land lower-interest mortgages, higher-paying jobs and nicer apartments. And we know that getting and maintaining a good credit score is essential to attaining those goals.

But what if you have no credit, or worse yet, bad credit?

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“Obviously, neither of these situations is ideal,” says Bill Hardekopf, chief executive of Lowcards.com, a credit-card comparison site. “In both cases, it’s going to take you some time to build up your credit score.”

Good credit must be earned. It’s no easy task to prove to lenders that you are trustworthy and financially responsible enough to pay your bills in a timely manner — that you aren’t one of those people who walk away from a pile of debt because you lost your job or got lazy about sending payments. Even some rich, successful people have lousy credit.

Lenders use sophisticated algorithms to determine how you really handle debt. Do you pay bills on time? Is your debt-to-credit ratio at an acceptable level? Do you overuse one credit card?

If you’re a risky bet, they know — it’s all spelled out in the algorithms. If you have no credit, they don’t have a clue. But according to Odysseas Papadimitriou, chief executive of CardHub.com, a marketplace for credit, prepaid and gift cards, that’s a good thing, because they’re more likely to take a chance on you than on that guy with the black mark next to his name. (See also: 10 things credit bureaus won’t say. )

“With no credit, lenders are willing to give you the benefit of a doubt,” he says. “Especially if you are also a student, because of your increased future earning potential.”

But if you have lousy credit? No one is going to give you the benefit of the doubt, he says.

Hardekopf thinks the treatment of those with bad credit scores is sometimes unfair because there are countless reasons a person’s number can plummet. After years of perfect payment cycles, for instance, you may have hit a rough patch (during the depths of the recession, perhaps) but are now recovering.

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“If you went bankrupt or were completely negligent at paying back your bills, that might be a deeper hole to dig out of,” he says.

The good news is that you can build or rebuild your credit score if you put your mind to it — and mind your p’s and q’s along the way.

“It is a slow process, but it is well worth the time and effort since so much in our financial lives depends on this very important credit score,” Hardekopf says.

Here are some tips on managing your debt and raising your credit score:

• Make a budget and stick to it. You can’t begin to build a credit score if you aren’t keeping tack of the ebb and flow of dollars in your budget. Rank your expenses by order of importance: debt payments, emergency fund contributions and other savings, and trim the fat. “Once you develop your budget,” Papadimitriou says, “stick to it, or else you’ll have wasted your time.”
• Pay your bills on time . Payments that are late, even if only by a day, are a big neon minus sign on your credit score.
• Pay off debt quickly and cheaply. The snowball method is as old as the debt trap that credit cards created. Use the majority of your monthly debt-repayment budget to pay down the balance on the card with the highest interest rate. But don’t ignore the others. Make the minimum payments of those and then move down the line, ticking off the cards — and not reusing them — as you pay them off.
• Keep balances low on credit cards and other revolving debt. Lenders like to see the debt-to-credit ratios at 20% to 25% of the available credit. And that’s per card. They don’t like it when one card is maxxed out and others are low or empty.
• Don’t close unused cards. Closing unused cards will not help raise your score. This goes back to the debt-to-credit ratio. The more available credit you have with the least amount of debt on the books, the better you look.
• Use credit cards. But pay them off monthly. It’s your best line of defense.
• Don’t apply for a bunch of new credit cards. For one, opening cards all at the same time will hurt because your score gets dented each time there’s a credit check on it. Lenders also are weary of a rapid build-up in credit. They think you’re preparing for a personal apocalypse.

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