When you are just starting out, it can be hard to build credit. So where should you start if you don’t have anything reporting on you yet? Here are some tips for millennials to build their credit when starting from ground zero.
This post is sponsored by CreditRepair.com. All opinions are mine alone and are honestly conveyed.
Apply for a credit card
One of the easiest ways to build credit is to apply for a credit card. Credit cards report to the credit bureaus each month that you have a balance and make a payment. So once you get a credit card, you will start building a credit history pretty quickly. You won’t necessarily see a big movement in score right away though. It takes time for the bureaus to see how you are going to handle the new credit that has been extended to you. So during this time, it is very important to make on time payments.
If you have a part-time job, it may be relatively easy to apply for and obtain your own credit card. Creditors want to know that you have the means to pay back the money that they are willing to lend to you. However, if you are a full-time student, you may need a co-signer to get started. So if you have a parent or responsible co-signer, they may need to help you in obtaining the initial credit card.
Get a secured credit card
If you can’t qualify for a credit card on your own and don’t have a responsible co-signer, then your next option may be to get a secured credit card. What is a secured credit card? It functions just like a credit card when you use it, however, it is different because you aren’t truly using credit—it’s really more of a debit card. With this type of card, you will have to make a small deposit before you are able to use the card, guaranteeing that you have the funds available to pay for your current charges.
Use small amounts of credit regularly
Once you get a credit card, it is important to use it regularly. This may sound kind of weird to tell you to use credit, however, this is exactly how you build a credit history—to have creditors reporting to the bureaus on you each and every month. The key to using your credit cards, though, is to know how to use them. Opening a couple of credit cards is even a good idea. You don’t want to open too many in a short period of time though, because that will have an adverse effect on building a positive score. You can carry a small balance or simply pay off the credit card each month, but using it every month will help to build your credit.
Make payments on time
It is important to make on-time payments any time, but especially when you are building credit. Your most recent payments are always those that weigh most heavily into your credit score, in particular the last two years. This time period is what lenders often look at to help determine credit rating and programs for which you qualify. There truly is no short-cut for building a solid payment history. However, as long or as short as your credit history may be, keep making those payments on time to contribute to the highest score possible.
Keep a low balance
Make sure to keep those credit card balances low. It is much better to have two or three credit cards with small balances (less than 50 percent balance to limit ratio) than to have one credit card that is maxed out. Showing that you are able to handle credit in a controlled manner and maintain a large amount of open credit (credit that has been extended to you, but you have not used), will increase your score.
Ask your landlord to report your payment history If you are renting, chances are, your rental payment history will not show up on your credit report. However, if you are making your payments on time, you may want to ask your landlord to report your history of payments, which can help to build a good credit history. The converse is true though too. If your rental payment history is less than perfect, it will harm your credit. So if you ask your landlord to report to the bureaus, make sure to diligently pay your rent on time.
Become a co-signer—with caution
Whenever you are a co-signer with someone else, the account is tied to your credit history. That means that if you are do-signer on an account that either you are the other party is paying on-time, it will build credit credit history in a positive way. However, you must be very careful about who you choose to become a co-signer with. Each co-signer on the account is responsible to make sure the account is being paid—and paid on-time. So if you sign jointly with someone who isn’t responsible, it could end up hurting your credit.
Keep the accounts you apply for and obtain
Don’t apply for every credit card that comes along. Rather, be selective in the credit cards that you apply for and obtain. For instance, if you know that your shop at a certain store regularly and will use the credit card for years to come, go ahead and apply for it. However, if you are just applying for a credit card to get some sort of short-term deal or discount and don’t plan on keeping it, it could hurt your credit. Why? Part of building a credit history is just that—history. If you don’t keep a credit card or account very long, it can still leave question marks for a potential creditor if not much is showing up on your credit report. And if you are applying for multiple credit cards that come along to get points or deals, you might be authorizing too many credit inquiries or new accounts opened in a short period of time.