Whether you just turned 18 or have simply never applied for credit before, building your credit for the first time is an important part of being an American adult.
How to Build Good Credit: The Six Best Tips
It seems like a super intimidating, complex process (and parts of it are), but on the whole, it’s not difficult to build up a good credit score.
Consistency and variety are two main elements of good credit. If you’re unsure how to start building your credit, here are six of the best ways to do it.
1. Check Your Credit Report
Figuring out where you stand is the very first thing you need to do when you’re trying to build up good credit.
There are plenty of places online to perform a free credit check, which will give you a breakdown of things like your current debts (if any), your total history, and pulls into your credit.
If you’re unsure what the numbers mean, here’s a quick breakdown:
- Anything between 300 and 580 is considered a poor credit score — you still have some work to do
- 580-670 is a fair credit score; you’re on your way upward
- Anything above 670 is considered good
- An 800 credit score is considered exceptional, and 850 is a perfect score.
Once you know what your credit report looks like, you can start building on it.
Even if your numbers are on the low end, that’s perfectly normal for someone with no credit history; you need to start somewhere.
Now that you know what your credit report looks like, it’s time to move on to actually applying for credit and using it.
2. Try Using Only One Credit Card
If using one credit card is enough to build good credit, is it better to use multiple cards? The answer is no.
It’s a misconception that you need more than one credit card to maintain strong credit scores.
Especially for first-time users, they might want to get more credit cards within the first few years. However, it can be the biggest disaster.
Because the more cards you’ll have, the more you’ll use it, and eventually, it’ll be difficult to pay the bills on time.
Additionally, too many hard inquiries with too many credit cards can affect your credit score.
If you’re trying to build good credit, do not use more than 30% of the credit limit available per credit card each month.
3. Become an Authorized User
Another best tip to build your credit score is to become an authorized user on a credit card.
If you have low credit or are unable to qualify for the credit card on your own, being an authorized user can be a logical solution.
For that, you can ask someone who uses the card responsibly and maintains a good credit score to add you to their account and you’ll be given your own credit card to use.
Its impact on your credit report is significant. The account’s positive payment history will be added to your credit report and help to increase the score.
After all, ultimately, it will help you manage the money way better, ensure your longer credit history, and lower credit utilization.
4. Apply for Lines of Credit (Responsibly)
You’ve probably heard that credit cards are dangerous and will get you into trouble. Like anything else in life, moderation is key.
Yes, credit cards are dangerous if you fail to use them in a responsible way; spending above your means and having too many will absolutely get you into trouble.
But if you take the time to research and understand how credit works, you can easily build your credit score as long as you’re making reasonable purchases and paying them off in a timely manner.
One line of credit that you might not realize is helping you out? Your student loans. Surprise!
Beyond stressing you out and being that ugly withdrawal every month, student loans can actually help boost your credit score without you realizing it.
If you set up automatic withdrawals and/or have a bank account just for your student loans, this is an easy way for you to never miss a payment.
Additionally, since your student loans will hang over your head for a long time anyway, they will be a long-lasting item on your credit score or “good debt” that shows a responsible payment history.
5. Apply for a Secured Credit Card
If your credit history is very poor, getting a secured credit card is the best way to build good credit. It’s even easy to get approved for this type of credit card.
You can use a secured credit card just like the traditional credit card for as long as you want.
Similar to an unsecured card, here also, you’ll be on a credit limit, charged interest, and can earn rewards.
The only difference is that you need to make a security deposit first to receive the line of credit.
So, if you ever fail to pay the amount, the issuer can utilize this deposit money in order to cover your debt.
Once you get the secured credit card, use it daily to pay for small purchases and pay the bills at the given time.
In this way, it’ll keep adding to your credit history and help to establish your credit score.
Meanwhile, it sometimes seems challenging to come up with the deposit. Some credit card companies often charge other fees like annual fees or maintenance fees.
Not to mention, a secured credit card charges a higher interest rate than the unsecured one. But if you want to improve your credit, it is undoubtedly the best option.
6. Pay Your Bills on Time
Mom and Dad always told you to do this, but it doesn’t really seem to click until you’re the one who has to make the payments.
While it may have gone in one ear and out the other then, now it’s especially important if you’re working on a good credit score.
If you want to apply for anything in the future — a home or auto loan, a credit card, or personal loan, for example — creditors like seeing a consistent payment history.
If your credit report shows that you’ve been reliable in the past, it’s likely you can and will repay them in the future.
Start Somewhere
The idea of credit seems like a scary monster when you’re brand new to it. Once you learn and educate yourself, though, it’s just another adult responsibility.
Conclusion
Start building up your credit as soon as you can, and make good purchasing decisions in your life. There will come a day when you will thank yourself for your foresight.
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