Building credit is important for everyone. Good credit can help you finance a car, rent an apartment, get a home mortgage, and set up utility accounts (like PG&E and cable); it can even help you get a job.
Here are 10 ways to get started:
1. Open a checking account. Checking accounts and debit cards are not only a convenient way to pay bills, shop online and manage money, they are actually a credit relationship. It is the first step towards responsible money management. Look for an account with no monthly fees, no usage fees, and is tailored to young adults, like our FirstStep Checking Account.
2. Authorized User. If your parents will allow you to be an authorized user on their account(s), that can help you get started. Lenders report authorized users to the credit bureaus which helps establish your credit file.
3. Open your own credit card. If doing it yourself is more your speed, you can open your own credit card. Look for a starter card that caters to young adults with little or no credit, has a low APR, a low starting credit limit and no annual fee, like our Visa Platinum Starter Card.
4. Use it and don’t abuse it. Don’t let your card sit untouched in your wallet. Use your card for small, regular purchases and then pay off your balance each month. Even with a low credit limit, you should only spend what you can afford to pay back each month. Over time, this pattern will show future creditors that you’re responsible.
5. Pay other bills on time. Your credit score is built from your entire credit history and usage patterns. It’s not just one credit card; it’s other obligations as well. Landlords can even report rent repayment habits.
6. Avoid big ticket items. If possible, keep your spending to purchases that you can afford to pay off in 1-3 months. Larger balances that take up most of your credit limit and continue to roll over monthly can adversely affect your score and can increase the interest you pay on the purchase.
7. Tread lightly. Don’t apply for several credit cards or loans at one time. A spike in loan inquires and applications can show that you are having trouble managing your money and that may lower your credit score.
8. Pay your student loans. First, keep student loan balances down by only financing necessary student expenses. Then, pay on time each month. Student loans have a reputation of not counting towards your credit, however, lenders do report to the credit bureaus on student loan repayment histories. Consumers who have little or no credit need to keep in mind that the credit bureaus and prospective lenders will use all the information they have to make a decision.
9. Keep your accounts open. Frequent opening and closing of accounts can negatively impact your credit depth and history. Lenders take into account how long you’ve been a credit user, calculated by your oldest line of credit. A longer credit history will improve your credit standing. Even if you don’t use your oldest card, as long as you don’t pay an annual fee, go ahead and keep it open. It is an advantage to keep several loan accounts active and paid up to date.
10. Stay aware. Consumers are entitled to one credit report per year. Annualcreditreport.com helps you monitor whether your credit score is improving or declining. Plus, it’s a great way to prevent fraud.
It’s important to build credit while you’re young. Even if it seems like a long way away – your first car or home are just around the corner. Good luck!
by Hemlata, AVP, Lending