How to start building credit

If you’re starting from square one with your credit, it can feel like an uphill battle. A nonexistent credit history can prevent you from being approved for a credit card, rental property, car loan, etc., simply because you have no official track record of money management.

Luckily, there are some steps you can take to help you build your credit efficiently and effectively.
 

• Become an Authorized User on someone else’s credit card – If you have a spouse, family member, and/or close friend who has already established good credit history, you can piggyback until you gain some momentum. Ask if they are willing to add you as an authorized user on one of their credit card accounts. The timely payments will positively impact your report, creating a good foundation on which to build your credit. The credit limit will also help by establishing your credit utilization, one factor that credit bureaus use to determine your credit score.

• Apply for a credit card geared towards college students – It can be challenging to get approved for a credit card when you don’t have any credit history. Consider applying for cards that are directly marketed to college students. The card issuers are more likely to be sympathetic to your lack of credit history, because this is a common challenge faced by many college students. The credit limit may be low, but it will protect you from excessive spending. Only charge for things which you have the cash to pay outright so that you can be sure to pay them down quickly.

• Open a checking and/or savings account – While checking and savings accounts don’t typically report to the credit agencies, they are still useful. Suppose you decide to apply for a loan or credit card through your bank. You are more likely to be considered if you have been a long-standing customer with a good track record of managing your bank account(s).

• Apply for a secured loan – A secured loan is backed by funds or property pledged with the promise of repaying the loan. This collateral remains yours unless you end up defaulting on the loan, in which case it will be surrendered to the bank. Collateral can be almost any type of asset; cash in a savings account, personal property, a home or vehicle, etc. You can use it to establish your credit by making all your payments on time. Be cautious with these loans and make sure you really can afford the payments before signing. If you fail to make a payment, the lender can repossess your asset.

• Ask your landlord to report your rental payments to the credit bureaus – Rental payments don’t usually show on your credit report. However, some landlords are now working with their tenants and third parties to provide this service. Try asking your landlord if it’s a possibility. The more of these timely payments you can add to your credit report, the better.