As you move into full adulthood, having good credit is increasingly important. However, it can be difficult for a student to build credit from scratch. If you’re on your own for the first time, thinking about all this can be quite overwhelming.
Thankfully, jump-starting your credit journey doesn’t have to be intimidating. There are a variety of ways to build credit. Here are some tips that even the most financially unsure can implement.
Become an Authorized User
For those just starting their credit journey, it may make the most sense to join someone else’s for a while. See whether you can be added as an authorized user on a parent’s card. It can be a good way to learn how a credit card works without the responsibility of owning one outright. By not being the primary account holder, you won’t be responsible for any debt incurred.
Just be sure the credit issuer is reporting authorized users to credit bureaus. If they don’t, this method won’t help your credit at all. If they do, or they can start, your credit score will build along with the account holder’s card use. If you don’t want to connect your credit to someone else’s, you will need to take a more direct approach.
Choose the Right Card
The most straightforward way to get started is to obtain a card of your own. There are a lot of options, and choosing which is the right one can be daunting. For most looking to build credit from nothing, a secured credit card will be the way to go.
This card is set up much like a debit card, where it’s backed up with your own money. Because of this, there’s less of a temptation to overspend. More importantly, this type of card will allow you to build credit over time. Doing so will make you eligible for different kinds of cards that will better fit your future needs.
Open One Account at a Time
Once you’ve successfully started using one credit card, it can be tempting to apply for more. Squelch that impulse. You may end up getting flagged for filing too many applications. This could prevent you from getting an additional card — or loans — in the future. Additionally, every time you apply for a card, your credit score will take a hit.
When you apply for a card, something called a hard inquiry takes place. Hard inquiries cause your credit score to dip. To avoid this, focus on one card at a time. Using it responsibly will do more for your credit than amassing several.
Develop Good Spending Habits
Being a responsible card user does mean you have to use the card. So don’t let it just sit in your wallet untouched. Your account can be closed for inactivity, which would not help you on your credit journey.
Instead, when getting started with a new card, find ways to make small, regular purchases. Things like a streaming service subscription or groceries are perfect candidates for credit card purchases. They happen regularly, and you’re likely to be able to pay the balance at the end of the month easily. Consistent use will be a huge benefit to your credit score.
Keep Balances Low
The spending part of owning a credit card is easy. The paying-it-back aspect is where people usually run into problems. If you’re only using your card for small-to-medium purchases, though, you should be all right.
For the present, focus on spending within your means and paying charges back promptly. Whenever possible, pay your bill every month in full. This will demonstrate to lenders that they can trust you. Having that trust will be vital if you want to make large purchases in the future.
If you must leave a balance on your card, strive to keep it as low as possible. Credit bureau Experian recommends keeping your credit utilization to 30% or less of your available credit. This just makes good financial sense. After all, unless you’re using a secured card, carrying a balance means you’ll be paying interest.
Pay All Bills on Time
As a credit score factor, paying bills on time is even more important than your credit card balance. Therefore, make sure you are paying all of your bills on time. It does not matter whether you pay with a card or not. Timely payments will boost your credit score; late payments will harm it.
Be sure that any time you owe money, you’re paying it back on schedule. This means everything from rent to student loans to traffic fines. More institutions are looking at other ways for people to build credit, and timely payment is one of them.
Regularly Monitor Your Account
A steady flow of payments from and to your account should be easy to track. That said, it’s up to you to keep regular tabs on your credit card account. Frequently check transactions and your balance to make sure nothing is amiss.
While checking your account consistently won’t do anything to improve your credit directly, it can prevent problems. You’ll be able to spot fraudulent activity and report it faster. The sooner it can be resolved, the less time it has to become a problem for you and your credit.
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Check Your Credit Report
As you build your credit, you’ll need to keep an eye on your progress. Reporting bureaus like Experian, TransUnion, and Equifax will provide one free credit report a year. Though a yearly check is an excellent place to start, quarterly or even monthly reviews could be better. Several institutions can provide free credit checks, so search for your best options.
Not only does checking your credit report let you see the progress you’ve made, it can also alert you to problems. There may be errors in your report, like an outdated employer or inaccurate charge. You’ll want to get those errors corrected as soon as possible, so your score isn’t affected long-term.
Beginning your credit journey can be overwhelming. When you’re on your own for the first time, being fully financially independent is a lot to take on. The best thing to do now is to establish good habits that will serve you throughout your life. Implement these tips, and you’ll be well on your way to a financially healthy future.