These days having a healthy credit score is more important than ever, so you will therefore want to learn how to start building your credit the right way. There are certain steps that you should follow to do this, and you will need to know what they are. The more positive credit you have, the easier it will be to get a home or auto loan and even the job you want.
Apply for a Secured Credit Card
If you are starting to build your credit from the ground up, you will first want to apply for a secured credit card. This type of card is backed by a cash deposit that you make upfront. The deposit amount for these cards is typically the same as the credit limit you are given. You will be able to use one of these cards like any other sort of credit card—you purchase things, make a payday on or before the due date, and get charged interest if you don’t make the payment in full on time.
Apply for a Credit-Builder Loan
A credit-builder loan will help you do exactly as the name implies, which is obviously to build up your credit. The money that you borrow with this type of loan is held by the lender in an account and isn’t released until you have paid it back in full. It is sort of a forced savings program, and all of the payments that you make or don’t make are reported to credit bureaus. A lot of credit unions and community banks offer these loans, and you will certainly want to at least think about taking one out in the near future.
Get a Co-Signer
You can get a loan or even an unsecured credit card with the help of a co-signer. It is important that the co-signer understands how much money they will potentially have to pay if you are not able to pay it back for whatever reason. You will find that a co-signer can be very helpful when it comes to building your credit, but you will need to find someone you are close to who will be willing to take the risk.
Become an authorized user on another person’s credit card
One of the lesser known ways to establish your credit is to become an authorized user on a friend or family member’s credit card. As an authorized user, you will have full access to a credit card and you’ll be able to start building your own credit history. The great thing about this is that you enjoy all of the benefits with the responsibility of having to pay for any of the charges.
Get credit for the Rent you Pay
It’s also a good idea for you to get credit for the rent that you pay each month. Rent-reporting services like Rental Kharma will take a bill you have paid and put it on your credit report. This can help you out a lot when it comes to building a positive credit history. It is important to keep in mind that not every credit score takes these payments into account, but there are some that do. You really have nothing to lose by doing this, so it’s highly recommended that you start looking into it.
Start practicing good spending habits
You will definitely want to make a point of practicing positive spending habits as early on as possible, because otherwise you could end up falling into a pit of debt and bad credit rather quickly. Make sure to keep your credit utilization as low as possible. Utilization is your balance when compared to your limit. It’s a good idea to pay in full each month, but don’t ever go over 30% of your credit limit. Also, make sure check each of your credit reports on an annual basis for any errors or discrepancies.
There are plenty of different ways to go about establishing credit for yourself, and you will need to take advantage of as many of them as possible. The more effort you put into establishing positive credit, the more you will benefit in the future. In the end you will be very glad you decided to take a proactive approach to building credit.
