Answer: Before you read this article, if you need to learn what credit is, see this article: What Is Credit? For everyone else, today we are going to give you an idea of what you have to do to build credit.
So, no one is magically born with credit. In fact, many people do not ever start to establish credit until its to late, when they really need it. In todays credit world, for most credit products, you need to be 18 years old. Now there are some other products available for teenagers, that would of course need parents permissions and co signing, and we will discuss those in future articles. Lets presume that you just turned 18, and you are super curious on how to build credit. To date, you have never owned a credit card, bank account, loan etc.
Building credit can be easy, but it does take time. If you have absolutely no credit at all, you should probably consider a credit card offer that is designed for people looking to establish credit. A secured credit card offer is a good way to start.
Secured Credit Cards
So, if you don’t have any credit, a secured credit card would be a good choice on your journey to start building credit. The reason a secured card is a good option is because most banks don’t look at your credit history when considering you for a secured card. Now, that doesn’t mean that you are guaranteed to be approved for this card, but it does mean that it might be easier to be approved for a secured card. The banks do however look at other things such as proper identification, minimum age of 18, your income verses your expenses, and also if you have any undischarged bankruptcies. They may look at other factors as well when considering you for their product.
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Lets presume you review the terms and conditions for the secured card, are ok with the annual fee, the interest rate and other fees, you apply and you are approved. You now have to deposit money into an account with the bank. (usually a savings account or cd). The bank will hold these funds as collateral, and usually the amount you deposit is your credit line a well. (All offers may vary). You will then have to learn how to use a secured card and be responsible with your credit.
How Do I Build Credit With A Secured Card?
One strategy to build credit with a secured card is to obtain a secured card with say a $500 limit. (yes, you have to deposit $500 as collateral) Then use that card each month and make the payment in full each month. This will show the bank that you are capable of using the line of credit and that you are also responsibly enough to pay the bill on time. By paying it off in full shows the bank that you ae VERY capable of borrowing that money and paying it off. These on time payments are usually report to the credit bureaus each month. (note: find a secured card that reports to all 3 credit bureaus like some of these. After 6 months or a year, hopefully this starts to show positive credit history on your credit report and hopefully your credit score has gone up! Be patient as it can take time!
We can talk for another 10 hours on this topic, but if you don’t want to read that long, then listen to this video:
Other Ways To Build Credit?
There are certainly other ways to build credit besides obtaining a secured credit cards.
Get A cosigner
You can ask one of your family members to co sign for you when applying for a credit card or loan. When they cosign, they are guaranteeing to the bank that if you don’t pay, they will! They would of course need to have good credit themselves for the bank to agree to this.
Become an authorized user on someone’s credit card account
Another option might be to ask a relative or friend to let you become an authorized user on their credit card account. Be sure first that the bank permits this strategy and that they report authorized users to the credit bureaus. As an authorized user, you can make purchases on the account, but you are not responsible for paying the bill! So hopefully you have someone that trusts you because if you mess up you can ruin your friends or relatives credit history! Read this article if you would like to learn more about the process of becoming an authorized used on a credit card account.
Build Credit With A Credit Builder Account
Some call them Credit Builder Loans (AKA Fresh Start Loans), but we prefer to call them Credit Builder Accounts. These accounts are newer products that have come to market with a goal to help people build credit and to save money at the same time! You typically do not need a credit history.
APPLY FOR A CREDIT BUILDER ACCOUNT: CLICK HERE
The credit builder account is pretty simple. With the contract you typically get an account with the bank. You then have a certain period of time in which you have to make payments to this account. These payments would include interest and principal. Each time you make a payment, your payments are reported to the credit bureaus and this in return helps you build a credit history. Even better, at the end of the timeframe, your account/loan is paid off and you an account that saved all the payments (minus the interest and fees) that’s all yours!
Department Store Cards
Sometimes a department store such as an electronic store or clothing store are a good place to start when wanting to establish credit. They typically will have lower credit limits but they are often enough easier to get approved for. Its never a guarantee but worth a shot, especially if you already have a secured card in good standing!
In Summary…
In order to establish credit, start early, learn about all the types of credit products that are available to you, be sure to read the terms and conditions for each credit product, apply for them, use them responsibly, and always pay your bill on time. its can really be that simply. be honest responsible and you will be rewarded!