I don't think that there is a “best” way, but there are several things an individual can do that help. Building a credit rating can take several years.
Many financial institutions solicit credit card business from post-secondary students. This is something that is fairly new, as young people without full-time jobs were always considered a poor credit risk when I was young. Today, the lenders exploit the advantages of 'hooking' people on easy credit as soon as possible. You can work this situation to your advantage. If you are working at a decent job and not attending school, it should be easy to obtain a card with a modest credit limit.
Your first credit card will usually have a credit limit of no more than $500. Use the card regularly for small purchases, even if you have the cash on hand. Pay the credit card bill in full and on time every month. If you charge more than you can afford to pay the following month, you will, in effect, be 'buying' your credit rating with your interest payments. This is only to the advantage of the bank.
Use your card this way for several months, then contact the credit card company and request a modest increase in your credit limit (e.g., $500 to $1000). If you have a good record with your card, there should be no problem obtaining the increase. Your bank may even increase the limit itself, if you have been a reliable customer.
If you cannot obtain a credit card, another way to build a credit rating is to make small loans from your bank to help finance the purchase of a used car or more expensive household items (e.g., appliances. The amount you ask for should be modest: a couple of thousand dollars would be adequate. The term of the loan should be as short as you can manage – perhaps six months or so. Pay the loan off completely. Do this a couple times, if you can manage it, and you will have established a decent credit rating. Use this opportunity to acquire a credit card and use it, remembering to pay the bill in full and on time every month.
If your bank will not lend you the money in the previous scenario, you may need to use a credit company that specializes in higher-risk loans (e.g., Household Finance). These are usually considered the lenders of last resort, because the interest they charge is much higher than the banks. But if you make a modest loan and handle it carefully, you can use this to establish a credit rating that the banks will accept. More than one of my friends used this exact method to establish their own credit rating as young adults.
Some retailers offer their products on the basis of a small down payment and 'easy' monthly terms. These retailers use a finance company to handle the details of the loan repayment – the finance company takes the risk and sets the interest rate accordingly. Since the interest charges can be substantial, make a modest purchase that you can easily repay. This also helps establish a credit rating.
Whatever you do, don't use a payday loan company to try and establish a credit rating. It will work, but it will cost you a packet. These outfits charge very high interest rates and service charges – they are the most expensive credit companies in legal operation today.
In short, the best way to establish a credit rating is to make small, modest purchases using money that you borrowed or with your credit card. Do this reliably, for a long enough period of time, and you will establish a good credit rating.
Whatever you do, *don't* get in over your head and find yourself stuck with a large credit card bill or loan payments. This is how these companies trap you into paying large amounts of interest. You can work the system to your advantage with caution and firm control over that impulse to buy, buy, and buy on 'easy' credit.
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