It has become quite difficult to do anything today without some sort of credit history. Credit plays a part in buying a home, getting a job, renting an apartment, and finding low interest rates on loans. One late payment can send your credit score down the toilet and can haunt you for the rest of your life. Yes, it’s much easier to build your credit from scratch than it is to repair it. So here are some suggestions on how to build credit.
1. Know your credit scores. The first thing you want to do when trying to build your credit score is to check your own credit report. There are three major credit bureaus; Equifax, Experian, and TransUnion. Every citizen is entitled to a free credit report from each of the major credit bureaus once every 12 months. Credit reports are used to judge your credit worthiness. Checking your report can eliminate errors that may have occurred, or even worse identity theft problems. It’s always a good idea to know where you stand with the credit bureau before you start building more credit.
2. Understanding how they score your credit. The two ways that your credit is judged are by paying your bills on time and how much credit is available to you. If you neglect to pay your bills on time or carry a high balance on any credit account your score will be negatively affected. It only takes one mishap to do this so make sure you keep track of when your payments need to be made and make them. The second way to understanding and building credit is to keep your credit usage to less than 30% of your credit limit. You don’t ever want to max out your card as this can get you in over your head and hurt your score. Always try and pay off the balance of your card; this will ensure that you credit score stays in excellent condition.
3. Open a checking and savings account. If you are not able to qualify for any type of credit then the best way to start building it is to open a checking and savings account. Lenders and credit bureaus see these accounts as a sign of stability. It shows them that you have some money and have been able to manage it responsibly.
4. Apply for a student credit card. If you haven’t done so already you might want to consider applying for a student credit card. These types of cards have become much more available as banks and companies have seen the need for students to have credit cards. Lenders are more willing to take risks on students than they are on graduates and it can really help you start building your credit.
5. Use someone else’s credit. Now I don’t mean that you should go out and steal someone’s credit card; that would be bad. One of the fastest ways to build credit is by being added to a credit card as a joint user. This most likely occurs with parents and children, but can really help you to build credit. You can make purchases for things such as gas or groceries using the card and if the balance is continually paid off your credit standing will improve and you will build your credit. It can however work against you. For instance if you are an authorized joint user; your name’s on the card; the co-signer neglects to pay off the balance and your credit history goes down the toilet. So make sure if this is the route you choose to take that you have someone you completely trust and you know will take care of the card.
Learning how to build credit doesn’t have to be rocket science; you just have to be responsible with your use of your money. If you can learn to budget and keep your finances in order, you can easily learn how to build credit.