Building your credit history from scratch may feel challenging. Lenders want to see that you’ve established good credit before they lend you money. But to build a good credit history, you need to have credit.
If you’re just starting out, here are some options that may be available to you:
The authorized user or joint account holder
Someone you know adds you to their credit card
Co-signed credit card or loan
You apply for credit jointly with someone who already has a credit history
Rent or bill reporting
You ask a landlord or other service provider to report your payment activity to the credit bureaus.
Store or gas card
You open a card at a business you shop at often
There are a few other options, but they often carry high fees. For example, a secured credit card requires you to deposit to an issuing bank, and then your credit limit is set at or below that deposit amount. With a secured credit-builder loan, your funds are held in a bank account. You won’t have access to that money until you’ve repaid the loan.
Choosing the right option for you
Before deciding on the right option for you, think about your needs. Here are some things to consider:
- The fees and interest rates a product charges (secured cards, for example, often charge high fees)
- The person responsible for monthly payments
- The amount of the loan or credit limit
- How do you plan to use the loan or product
- Whether you feel confident that you’ll be able to make the required payments on time
Typically, each time you apply for credit or a loan, a hard inquiry (also known as a ) will appear on your credit history. Too many credit checks, especially in a short period of time, could lower your credit score.
Rather than applying for everything available to you, consider picking one or two options that best fit your needs.
Building good credit
Building good credit can help expand your credit options to get new cards, reduce your monthly payments, or take out an auto loan or a mortgage with a favorable interest rate.
To build a good credit history:
- Pay your bills on time
- Maintain low balances
- Try not to use all of your available credit
- Borrow or apply for what you need
- Don’t apply for several cards or loans in a short period of time
- Check your credit report regularly for and potential fraud
- Keep your accounts open, active, and in good standing
Following these best practices can help you improve your credit health over time.
Remember that for many reasons. It isn’t just for , such as a home or a car. You can also use credit to pay for college, rent an apartment, secure a credit card or get a cell phone contract. —Paying for things over time can help you reach your long-term goals.
No matter where you are in life, it’s never too early or too late to begin building your credit history. Please don’t wait to establish credit until you need it. Building your credit slowly can show lenders that you’re reliable.