Building credit from scratch can seem overwhelming. It’s a necessary step in your life as an adult, though. Without a track record of credit card payments, installment loan payments, or mortgage payments, you won’t be able to establish a credit score.
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The sooner you start building your credit, the easier it will become to build it. But even if you are an ‘official’ adult and you have yet to establish credit, it is possible to build it from the ground up.
Get a Secured Credit Card
The easiest way to start your credit is to apply for a secured credit card. Because this debt is ‘secured,’ lenders will be willing to give you a credit card even though you don’t have any other debts or a credit score. Your credit line is usually worth the amount you put down on the card.
For example, if you put a $500 security deposit down on a credit card, you will have a $500 credit line. As you use the card, you make your regular payments. If you ever default on the payments, though, the credit card company will use your deposit to make the payment. Your credit line will then decrease unless you make another deposit.
This isn’t a permanent solution, though. You should only use this method for 6 – 12 months or long enough to give your trade line time to be established.
Apply for a Department Store Credit Card
Once you establish yourself with the secured credit card, try applying for your favorite department store’s credit card. Department store credit cards usually have flexible guidelines, which may make it easier for you to qualify.
If you get the credit card, use it. Don’t max it out, but instead, charge what you would normally purchase. Then pay the balance off in full each month. This will help establish your positive payment history, which your credit score will need in order to be as high as you want it to be.
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Get on Someone Else’s Credit Card
You can actually take this step as soon as you turn 18-years old. Ask your parents or another close relative to make you an authorized user on a credit card or two. Before you take this step, though, find out from the credit card company if they report authorized users to the credit bureaus. If they don’t, this step won’t help you. If they do, though, it can be a great way to establish a few trade lines.
Of course, this is a delicate situation. You now have access to a family member’s credit card. Make sure you have the terms outlined regarding the use of the card. Are you just on it to get the credit bureau benefits or do you have free reign of actually using the card? Hashing these things out beforehand can help you keep the relationship intact while you fix your credit score.
Ask Someone to Cosign
If you want to take out a loan or even a credit card, consider asking a parent or other close relative to cosign on it for you. If you have someone in your family that has great credit and good income, they could help your chances of getting approved. If the loan or credit card is also in your name, it will report to the credit bureaus in both names, which can help you build the credit you need to build.
Ask Your Landlord to Report Your Rent
Landlord’s don’t always report rent to the credit bureaus. If they do, though, it can help you establish credit. Housing payments are a good way to show lenders that you are able to handle high payments and make them on time each month.
Discuss the option with your landlord and then follow through with the credit bureaus to make sure the trade line is being reported. After 12 months of housing payments being reported, you should be able to have a credit score.
Pay Your Student Loans on Time
If you have student loans from college, they can also help you build credit, especially if they are in your name. Be careful, though, you must make your payments on time. If you don’t, those student loan payments can cause your credit score to plummet, which defeats the purpose of trying to build a credit score.
Building a credit score from scratch definitely takes some legwork, but if you do it right, you can have a credit score in as little as 12 months. Just make sure your habits are consistent and that you pay all of your bills on time.
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