As you graduate and enter the working adult world, you’ll quickly realize that you’ll need good credit to make just about any type of big purchase.
From financing a new car, to purchasing a new house, or even just trying to refinance your student loans, you will need a good credit history to ensure you’re getting the best interest rates for your purchases.
Starting to build your credit can be tricky, however, because you typically need a credit history in order to get approved for a loan or credit card.
To establish and build good credit, below are five tips to get your started.
1. Apply for a Secured Credit Card
If you have no credit history or a negative history, you may not be able to qualify for a regular credit card.
A secured credit card, however, is another option.
These cards are usually tied to a savings account or require a deposit, and your credit card limit is whatever amount you deposited, or just a percentage of it.
Just like a regular credit card, you build credit by making purchases with the secured credit card, keeping your balance low or at zero, and paying your bill on time every single month.
Not every lender will report a secured credit card to the credit reporting agencies, but you should be sure to ask your lender this before opening any type of account.
2. Become and Authorized User on Someone Else’s Credit Card
Another option if you cannot get approved for a regular credit card is to become an authorized user on someone else’s account, such as a family member.
By becoming an authorized user, that card’s payment history will go onto your own credit files, so you will want to be sure to only be added to an account whose primary user makes timely payments each month and who doesn’t run the card up to its limit.
3. Apply for a Loan with a Cosigner
If you can’t get approved for a loan on your own, consider asking a close friend or relative to be a cosigner on the loan with you.
Make sure you ask someone with a positive credit history and steady income to cosign to increase your likelihood of being approved.
Once you make enough timely payments on the loan on your own and begin to establish (or improve) your own credit history, you can apply to refinance your loan to remove the cosigner.
4. Make 100% of Payments on Time
If you already have a credit card, car payment, or even just student loans, it is essential that you pay your monthly bill on time every single month.
Even just one missed payment that goes unnoticed for an extended period of time can lower your credit and will show up on your credit history for years to come.
5. Keep Credit Utilization Low
Again, if you already have credit cards, keeping the balances low is vital to maintaining or building up a good credit score.
Ideally, you should aim to pay your credit card bills in full at the end of each month to avoid paying extra money in interest over time.
If you can’t pay them all in full, however, it is best to keep your utilization no more than 30%.