Building credit history and obtaining credit is somewhat of a chicken and egg situation. This is because you can’t obtain credit without a positive credit history. You can’t build a history until you’ve had some credit. So what are you supposed to do? Building credit history does not necessarily mean that you are drowning in consumer debt. It means you are being more responsible for the usage of your credit. Let’s look into some options for those looking to get started who may not be eligible for conventional credit cards and loans.
How to Start Building Credit History
Your credit history can affect a number of financial management decisions in your life. Your ability to rent an apartment, obtain a mortgage, and get a reasonable interest rate for a loan are just the surface of it all. If you are at the beginning of building credit history, the following tips can come in handy.
Use a co-signer
For young adults (18 years and older), obtain a credit card with a parent or guardian as a co-signer. Co-signers on an account are equally responsible for the loan. Therefore, the loan is on their credit reports as well. However, note that there can be a positive or negative impact on the co-signer’s credit depending on how well you manage the credit card.
A small loan from a bank
Acquire a small loan for an item for which you already have the money in a separate account. This removes any risk from the plan. Then, set up automatic payments to repay the loan. Using a local bank or credit union where you already have a checking or savings account usually works best.
Obtain a secure credit card or loan
Secured cards and loans typically require a cash or collateral security deposit to ensure payment of the debt. The larger the security deposit, the higher the credit limit granted. The cash security deposit is returned when you pay the balance in full.
Building Credit History – Some More Tips That Can Help
- Pay bills consistently and on time.
- Maintain reasonable amounts of unused credit.
- Only apply for credit when needed. This keeps inquiries to a minimum.
- Do not “max out” your credit cards. The recommendation is to use around 30% of your limit. That’s the total combined limit of all your accounts.