How to Start Building Credit: A Beginner's Guide
You probably know that major life purchases like a home or car require credit. But you may not know how to start building credit. It can seem like a vicious cycle: You need access to credit lines to get good credit, but no one will give you a credit line if you don't already have good credit.
Believe it or not, everyone with credit has been right where you are. To help you get a smart start, here are four ways to begin building credit today.
Secured Credit Cards
With a secured credit card, you put a sum on deposit at the issuing bank, either a percentage or the equivalent of the credit line. For example, a credit card issuer might request a $250 security deposit for a $250 credit line. This way, the bank has the money for the balance of your charges on deposit at all times, making you a less-risky person for them to issue a credit card to.
These credit cards can often be converted into unsecured cards after a certain period of on-time payments. Secured or not, credit cards report to the three major credit bureaus – Experian, Equifax and TransUnion – helping you build your credit.
Student Credit Cards
If you're enrolled in college, credit card companies want to help you build credit. This means you may be able to get a credit card without a cosigner or even a security deposit. While you may be more likely to get accepted for a student credit card compared to a non-student card, your credit line may be lower and interest rates slightly higher to balance out the risk of issuing credit to someone without a good credit history.
Lease an Apartment
Consumers can now explore making their rent payments count by paying their rent through Rental Kharma or RentTrack. These two companies and others like them can potentially partner with your landlord or property management company to give you consumer credit for your on-time rent payments. The companies act as an intermediary between you and your landlord: You pay them, and they pay your landlord. If you're already renting, explore this option (and its associated fees) and ask your landlord whether they're willing to enroll to help you build your credit profile.
Tips for Smart Credit Building
- Charge wisely: A smart way to start building your credit history is to ensure that you never charge more than you can pay off in a single month.
- Remember, balances matter: Did you know that your credit score is partially based on how much credit you have available? This means that if you have two credit cards with $500 limits but only $200 available across both cards, your score will lower. Try to keep month-to-month balances you can't pay off at no more than 30 percent of your credit limit per card.
- Make payments on time: A single payment made 30 days late can have a significant impact on your credit score. Set reminders in your calendar for five days before any payment is due so you can schedule a payment online. On-time payments mean an easier road to building credit.
Everyone has to start somewhere. Begin building credit with these tips today and put your future financial plans within reach.