Young and Eager to Build Your Credit Score? Here Are Five Ways to Do So.
By now, you might have discovered that building credit can present a conundrum: To secure credit, you must have established a good credit score; but to build a credit score worthy of lenders’ trust, you have to have secured credit. This, you realize, is reflective of the chicken and egg mystery: Which comes first if one depends on the other?
Thankfully, there are some ways to sidestep this circular, nonsensical barrier.
Here are 5 ways you can work on building your credit.
1. Have Someone Cosign a Loan for You
One way to build your credit is to apply for a loan or credit card with a cosigner. This enables you to secure a debt in your name (and therefore build your credit score by making timely payments) while essentially borrowing your cosigner’s good credit.
While you’ll have access to the money from the loan or credit card and indeed have your name on either, your cosigner will ultimately be responsible for the payments (or lack thereof) and therefore put their credit score on the line. To respect their good credit (and build your own!), you’ll need to make each and every payment on time.
2. Become an Authorized User
In some cases, someone—such as a parent—can add you as an authorized user to their existing credit card or loan. This means that you can access the money and make payments on it, but that they’ll (your parents or the primary users of the account) ultimately be responsible for the payments. In this case too, you’ll need to respect their score by taking consistent responsibility for your spending.
For this option to contribute to your efforts to build your credit score, you’ll need to make sure that the lender reports the payment activity of authorized users to credit bureaus. If they do, you’ll need to make payments on time without fail to build your credit score. If they don’t, this won’t be a viable option for giving your score a boost.
3. Apply for a Student or Store Credit Card
Credit cards of these sorts generally lend smaller amounts of money and therefore carry less risk for the issuer. This means that they may be willing to issue them to people without established credit history (you!).
Remember that while cards like these generally carry smaller balances, they can still add up, especially if you use multiple cards at once. You’ll need to make timely payments without fail to take good care of your newly established credit. (Are you noticing a theme? The key to building good credit is consistently making payments on time!)
Consider using cards like these for the essentials you already know you can afford—groceries, gas, etc.—and limiting purchases of items that can push you into the deep end of debt.
If you have expenses that you use student loans, scholarships, or parents to pay for (thank you, parents!), consider paying for those expenses with your credit card and then using the money you receive from other sources to immediately pay it off. This too can help you build your credit without running the risk of going too far into debt.
4. Apply for a Secured Credit Card
Secured credit cards are backed by a cash deposit you make upfront. They act just like traditional credit cards in that the balance accrues interest and prompt payments are rewarded with a boost to your credit score (and late payments are punished with dips in your credit score). The lender will only draw from your deposit if you fail to make a payment. This eliminates the lender’s risk and enables you to slowly build your credit without the risk of accumulating too much debt.
5. Put the Bills in Your Name
Consider putting utility and other bills in your name rather than your roommate’s. Note that for this method to facilitate a good credit score, you must pay each and every one of your bills on time, without fail. If you’re dependent on your roommate’s contribution to do so, you’ll need to make sure you can trust them to give you the financial goods on time!
In some cases, you can also build your credit score by paying your rent on time. Rental Kharma and RentTrack are two examples of rent-reporting services that help you get boosts on your credit score. Not all cases of rent-paying are eligible for this option, but it’s always worth checking out.
Key Points to Building Good Credit
Ultimately, no matter your method for building your credit, doing so requires the same steadfast devotion and integrity you’d put into meeting a long-term goal or keeping a relationship healthy. Committing to a few weeks or months of effort simply won’t do.
Instead, you must focus on achieving the goal through consistent, steadfast action and attention. All of your efforts will be paid off when you can afford larger loans—for cars, houses, or businesses, for example—in the future.