By: Michael Esparza
Starting a credit history is important for building a strong financial foundation. A good credit history can help you qualify for loans, get lower interest rates, and rent an apartment. If you are starting out, there are a few things you can do to build your credit history.
- Open a Bank Account: Start by opening a checking and savings account with a bank or credit union. This establishes a basic financial relationship and helps you manage your money.
- Apply for a Secured Credit Card: A secured credit card is a good option if you have no credit history. You’ll need to provide a security deposit, which becomes your credit limit. For example, if you deposit $300, you can charge up to $300 on your card. Make small purchases and pay the balance in full every month to build a positive payment history.
- Become an Authorized User: You can ask a family member to add you as an authorized user on their credit card account. Their positive credit history may be reported on your credit report, helping you start building credit.
- Apply for a Starter Credit Card: Look for credit cards designed for individuals with limited or no credit history. These cards might have higher interest rates but can help you build credit if used responsibly.
- Apply for a Student Credit Card: If you are a college student, you may qualify for a student credit card, which is designed for young adults who are new to credit. Student credit cards typically have lower credit limits and higher interest rates than regular cards, but they may also offer features that can help you build your credit history and learn financial skills. For example, some student cards may reward you for paying on time, maintaining a good GPA, or giving you access to educational resources or free credit scores. To apply for a student credit card, you may need to provide proof of enrollment, income, or bank account information.
- Pay Bills on Time: Pay all your bills, including utilities and rent, on time. Timely payments contribute to a positive payment history.
- Pay Your Credit Card Statement in Full: Paying your credit card balance in full is better than making the minimum payment because it saves you money on interest, builds your credit score faster, and helps you avoid debt collectors.
- Keep Utilization Low: If you have a credit card, keep your credit utilization (the percentage of your available credit you’re using) below 30%. This shows lenders that you can manage credit responsibly.
- Check Your Credit Report: Regularly check your credit report for errors or inaccuracies. You’re entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian, TransUnion) once a year.
- Avoid Opening Too Many Accounts: Opening too many accounts in a short period can negatively impact your credit score. Only apply for credit when you need it.
- Diversify Your Credit: Over time, consider having a mix of credit types, such as a credit card and an installment loan (like a personal loan or auto loan).
- Be Patient: Building credit takes time. Consistently practicing good credit habits will gradually improve your credit history and score.
Remember, the key is responsible credit management. Pay your bills on time, keep your balances low, and avoid taking on more credit than you can handle. This will help you establish a positive credit history and pave the way for better financial opportunities in the future.