As you grow older you realize how important it is to have a good history of credit established. If you need to rent an apartment, you need credit. If you want to buy a new car, you need credit. The need to establish credit is present for many necessities of life. The question is, how do I establish credit if I don’t have any experience with credit?
There are a few simple steps you can take in order to begin your credit journey and establish credit.
Open a credit card account
It becomes obvious that not all credit cards are made equal when applications are filled out. If you don’t have credit history, you may want to begin applying for starter credit cards. These may be student credit cards if you’re younger or secured credit cards if you’re older. They may come with annual fees and higher interest rates but it will be worth it in the long run when you have established credit and can then apply for credit cards with better terms.
Apply for a secured credit card
Secured credit cards are perfect for those just beginning to establish credit. They are made for those with little to no credit history, or for those rebuilding their credit. Secured credit cards are a bit easier to get approved for because you provide the bank with a security deposit that would then be used as your credit line. You still have to make monthly payments with these cards, and some do come with annual fees and interest as a traditional credit card would. However, because you are providing a security deposit to the bank, they are much easier to get an approval. The Discover It Secured credit card is a great secured credit card to begin with.
Become an authorized user
If you have a parent, guardian, friend, or spouse who has already established decent credit, you can become an authorized user on their account. This means regardless of you using the card or not, you establish credit based on their payments and revolving credit for that specific account. This is a great option if you have no credit history whatsoever. However, there is some risk involved because your name is associated with someone else’s credit account. If the person that has you as an authorized user doesn’t keep up with payments, it is reflected on your credit report. So, it is very important to make sure that the person helping you with this account is responsible and able to make their monthly payments on time.
Apply for a loan
Some may believe it is a bad idea to take on debt in the form of a loan without any credit history. However, if you’re establishing credit for the first time, a loan can help tremendously. If you’re younger you may think about taking out a student loan while in college. This is a great way to establish credit because a lot of schools allow you to take out a federal student loan, requiring little to no credit history. These loans are easier to receive approval when compared to private student loans. Another loan to establish credit is a credit-builder loan. You take out a loan but are not given the amount borrowed until it is paid in full. You make monthly payments towards the amount borrowed and the money is then available once it is paid off. It’s like making a monthly contribution to a traditional savings account, except it helps you establish credit and may come with interest fees.
