If you’re a young person just starting to make your way in the world, you’ve likely been told by some authority (parents, teachers, adults on the street) how important it is to build good credit. A solid credit history may not make a huge difference for you now, but it will pay dividends later in life, when you need good credit to buy a house, buy a car, or even get a job!
Luckily, you can get started now: follow these tips, and your credit health will grow as time goes on. You won’t be left out in the cold when you need to qualify for that big loan.
If you are already steadily employed, congratulations! If you’re not, you should try and find full-time work (or part-time if you’re in school). While holding a job does not directly build your credit score, steady employment is a factor that lenders consider when approving a loan or a credit card. And you can use the money you earn to build your credit in the following steps.
Credit cards are a great way to build up credit. Once you can afford to make credit card payments, you can get started by applying for a credit card with a low maximum balance. Another way to build credit is through store credit cards for retailers at which you frequently shop.
If you have trouble getting a credit card with no credit history, you can get started with a secured credit card. Secured credit cards require a cash deposit before you can get a line of credit, so that the card issuer has some collateral to lower their risk.
Once you have a credit card, make small charges each month. Only charge what you can afford to pay off by the end of the month, and above all else, make your payments on time. This way, you can avoid paying interest while building your credit by making on-time payments to your credit card.
Even if you have a credit card you don’t use, keep your account open. One of the factors credit bureaus use to score credit is the age of your accounts. The older your account, the more it benefits your credit.
You should be paying any bills you have—Internet bills, phone bills, rent, etc.—on time and in the full amount. Late or missed payments and delinquent accounts can be reported to credit bureaus and stay on your credit report for seven years, so make sure you are paying your bills on time and in full!
If you don’t have much credit history, you don’t want to do anything to hurt your credit when you’re just getting started. Your credit score is damaged a bit any time you apply for a loan or a credit card – so applying for multiple loans or credit cards at one time can be very damaging to someone with little or no credit.
You have the right to know your credit score, so don’t take all these actions to boost your credit without monitoring your progress. You can check your score on an annual basis to make sure you’re continuing on the right track.
Ideally, you should pay off your credit card balances each month. Even if you can’t, keep paying them down. The last thing you want to do is max out your credit card balances. This makes you look like a credit risk and someone who depends upon credit cards just to get by.
If you have little to no credit history, you’re still ahead of people who have unmanageable amounts of debt. People sometimes take on large amounts of debt when they are young (such as car loans, credit card balances, and student loans), and they end up paying them off for years to come.
We aren’t saying not to buy a car or go to school – but make financially prudent decisions on what car you can afford to drive, or what school you can afford to attend.
Building good credit takes years. It can be easy to get frustrated at the length of time it takes to build a credit score. However, all the efforts you make now will begin to stack up and pay off in the years to come. Don’t give up!
With these tips you can start to take control of your financial future; a huge part of that is your credit score. By following these tips, you can start yourself on the right path to financial independence and great credit.
More expert advice about Credit and Debt Management
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