So, you’re a grown up now… you’ve graduated from high school, college, or trade school. You’ve got that first real job and you’re ready to start building your future. One of the most important steps you can take to build the future you want is to start building your credit history. Building a solid credit history enables you to do so many of the things that you’re planning for your future. With good credit, you can get that nice apartment, buy that first brand new car, or even buy your first home.
But how do you go about building that all important credit history?
The very first thing that you should do, before you do anything else, is to find out exactly what your credit score is. Even if you’ve never had a credit card, your credit history may include any student loans you have or have had in the past, a personal loan, an auto loan, or something else.
(Especially with the recent data breach at one of the big three credit bureaus, it’s imperative that you check your score! Someone could already be using your information for fraudulent purposes.)
There are several places where you can access your credit reports, among them AnnualCreditReport.com (which gives you a free copy of all three reports), or you can set up a username and password with a company like these shown below and get your free credit score.
The main thing is to find out what your credit score is, see what’s on your credit report, and correct any inconsistencies that you find on the report. Sometimes it’s as simple as filling out an online dispute form, other times you may have to send in documentation to correct something, but whatever you do, don’t stick your head in the sand!
Know what’s on your credit report, know your credit score, and be ever vigilant in all of your financial moves. Remember, it’s your credit score that determines whether or not you’ll get that loan, that job, or even that first credit card.
And speaking of credit cards, don’t just apply for the first credit card that you find online. Do your research! Some credit cards offer seemingly low interest rates, but can be offset by high annual fees or really low credit lines. Others offer rewards, like a rebate based on the amount of purchases that you make with the card, or reward points that you can use towards airfare, hotels, and more.
Choose a credit card that fits your credit score.
For example, if your credit score is higher, you’re very likely to qualify for those lower interest rate cards than if your credit score falls into the fair or even no credit range. And if your credit score is lower because you haven’t really ever had credit before?
Then you should consider other types of cards to start, namely catalog or secured credit cards to “jump start” your credit score, thereby allowing you to build your credit profile sooner rather than later. Visit our Store/Catalog Credit Card page or our page for a Limited or No Credit History to see which offers best fit your personal credit needs.
(Don’t make the mistake of applying for multiple cards at first – every time you apply for credit, lenders pull your credit report, and that can lower your credit score.)
Typically, if you know your credit score up front, and if you stay within the range of offers that are specifically designed for your credit score when choosing a credit card, you’ll get approved on your first or second try. But, in the event that you do have trouble getting your first credit card, you still have options:
- See if you can become an authorized user on someone else’s credit card, such as a relative. Just remember that your use of the card will also affect the credit score of the person who put you on their account, perhaps even damaging their credit score if you make mistakes with the card. And, the person who puts you on their card is financially responsible for your use of that card, so if you don’t pay, the creditor will go after the other cardholder.
- Get a secured credit card. A secured credit card is exactly as it sounds – your credit line is secured with a deposit that is held in a checking or savings account. If you fail to make your monthly credit card payments, the bank will take the deposit out of the checking or savings account that “secures” your credit card. The credit limit on a secured card is typically the same as the deposit amount, but can increase or even be converted to a conventional credit card account over time.
Finally, once you actually have your first credit card, make sure you use it responsibly if you want to start building that all important credit history! And you will have to use the card, not just carry it around in your wallet – if you don’t actually use the card, you won’t need to make payments, so you won’t build your payment history. Try making one or two smaller charges each month, then
Once you have your first credit card, use it correctly if you want to raise your credit score. The biggest factor in your credit score is your payment history. If you don’t use your card, you don’t need to make payments and can’t build a payment history. Make at least one charge each month, and make your monthly payment on time. (Be careful that you only use about 30% or less than your total credit line, too, because that’s the second most important factor in building credit.)