Having credit is an essential part of life. Without it (and without good credit), it can be a roadblock to some big life milestones. Things like renting an apartment, buying a car, qualifying for a mortgage, and sometimes, even getting a job depends on your credit. So, a common question is, how do you start building credit?
We’ll break down some of the best ways to start building credit below.
Get a credit card
A credit card is a great way to start building credit, because you don’t have to take on any debt. You can put your usual purchases on it (like gas or groceries), and as long as you pay it off in full every month, you’re establishing credit! (Check out our review of Deserve, a credit card company designed to help people build credit.)
If you don’t want to get your own credit card, another option is to become an authorized user on someone else’s account. See if a family member or friend will let you do this. Determine how you’ll cover the charges with the other person, and use it the same way you would your own – paying it off on time and in full every month. Just make sure whoever you become an authorized user with has been smart with their credit card and has good credit habits, because their card’s payment history will be linked to your credit, too.
Get a loan
We’re not saying get a loan just for the sake of getting a loan. But if you have a reason to get one, such as buying a car, paying for college (more on that below), or even just getting a small personal loan to help with something such as moving expenses, it is a good way to start building credit.
It works the same as a credit card. Make your payment on time each month, and watch your credit grow. Plus, if you have a credit card too, it will help with your credit mix (another factor that is reported to credit bureaus).
Take advantage of those student loans
If you’ve taken out student loans for college, they’re helping you build credit! As long as you’re making your payment on time each month, your loans are boosting your credit score. Even if you’re still in school and haven’t entered repayment yet, your loans most likely are reported to credit bureaus (they just show as “in deferment” until you graduate and enter repayment).
Practice good credit habits
Practicing good credit habits is just as (if not more) important as having these things. Make sure you stick to these habits as you build credit:
- Pay your balance off in full. Carrying a balance on your credit card hurts your credit, and you don’t want to have to pay high interest fees, either! As a general rule, don’t charge more than you can pay off each month.
- Make payments on time. Set up auto-pay, or create a reminder at least the day before your payment is due to pay it. Late payments are reported, and there are typically fees for late payments. It can be easy to forget, but don’t let this damage your credit!
- Don’t charge too much. You should use your credit card consistently, but charging too much can actually hurt your credit. Having a low credit utilization is something that can improve your credit. It’s typically advised to not use more than 30% of your available credit limit. This means that if your credit limit is $1,000, you shouldn’t charge more than $300.