Part of having and building credit is regularly checking your credit report and score. It’s important for several reasons:
- You can catch errors and report errors on your credit report that are lowering your credit score
- It is motivating to watch your credit score climb
- You can make sure creditors and your landlord are reporting your payment history to the credit bureaus
Additional Ways to Start Building Your Credit for the First Time
Following the six steps outlined above will positively impact your credit score, and relatively quickly. While they’re a great starting point, there are still some other effective ways for you to start building your credit:
Have a Family Member or Friend Co-Sign a Loan
Having a relative or friend you can trust co-sign for you:
- Will possibly help you get approved for a loan you wouldn’t have been able to take out
- Uses their good credit to your advantage
- Provides you with a safety net if your income takes a downturn
Take Out and Pay for a Credit Builder Loan
A credit builder loan is an underutilized tool to help build credit. It works differently than a conventional loan. With a credit builder loan you:
- Make your payments before receiving any money from the lender
- Receive payment after you’ve paid the loan in full
- Have your payment history reported on your credit report
- Get a loan you never would have gotten traditionally
Be sure you can easily make the required monthly payment, as missing payments will hurt your credit.
Open Credit Card Accounts at Retail Stores
When you open new credit cards at retail stores you shop at:
- You lengthen your credit history
- You learn to use credit responsibly
- You can get discounts when you pay with your card
Don’t apply for too many cards at one time; it can end up hurting your credit score, not helping it.
Finance a Purchase Using an Interest-Free Offer
Many large retailers offer zero financing, and your payment history is reported to the credit bureaus. This helps you:
- Purchase items you couldn’t have without the offer
- Have on-time payments reported to the credit bureaus
- Establish your credit
Lease a Car from a Lender That Reports to Credit Bureaus
- Not all lenders report leases to credit bureaus
- Reporting your on-time lease payments counts the same as on-time car loan payments
Take Out Student Loans
- Having a mix of loans that includes student loans helps your credit more than simply having credit cards
- Can help you pay for an education that will increase your income for the rest of your life
What You Need to Know About Building Credit for the First Time
If you’re starting to build your credit for the first time, you may have many unanswered questions. These are some we’re frequently asked:
Why do I Need to Build Credit?
Building good credit helps you get higher loan amounts and better interest rates, live in nicer places because landlords and mortgage companies often decline people with poor credit, and get better jobs because employers see you as more reliable than someone who mismanages credit.
What are the Minimum Requirements for a Credit Score?
All that’s needed to get a credit score is to have a creditor report your payment history to the credit bureaus, which is why you want to make your first on-time payment as soon as possible after being approved.
How Quickly Can I Establish My Credit?
You can establish your credit score as soon as 30 days. Credit reports are usually updated at least once a month.
How Often Does Your Credit Score Update?
It’s up to the credit bureau to decide how often they update credit reports and scores, but they usually do it monthly.
How Long Does It Take to Build Good Credit?
Many people are pleasantly surprised to find that their first on-time payment shows up as a positive on their credit report within a month.
Why Does Having More Credit Improve My Credit Score?
Having more credit improves your score because it indicates you can handle credit responsibly. The key is not to apply for too many cards at one time, which is a red flag to lenders.
Do I Need to Go Into Debt to Build Credit?
Absolutely not. Even a credit builder loan doesn’t put you into debt. You’ll only be taking on unnecessary debt if you don’t pay your credit card bills in full each month and end up paying high interest charges.
How Can I Build Credit Fast?
You can build credit fast by combining any of the steps just discussed.
Tips for Beginners Who Are Building Credit for the First Time
Here are some helpful tips if you’re building your credit for the first time.
- Do Your Research to Understand How Credit Scores are Calculated: If you know how credit scores are calculated, you can take action accordingly.
- Find Financial Institution That Are Beginner-Friendly: Financial institutions that are beginner friendly will offer secured credit cards, credit-builder loans, and other financial products for beginners, like debit cards tied to a checking account. They can easily be found online.
- Understand the Requirements Before Opening Credit Accounts: It’s always a best practice to read any legally binding agreement, like a credit card application, before you open an account. There are plenty of scams out there, so be sure to read the fine print and check out the institution issuing the card.
- Start Small and Avoid Submitting Too Many Applications: By starting small, you avoid creating too much debt too quickly, which can damage your credit. Applying for too many cards or loans at one time is a red flag to lenders. Instead, take it one step at a time and space out your loans by at least 90 days.
- Dispute Errors on a Credit Report: Errors on credit reports happen regularly, which is why you should check yours regularly. If you see an error, dispute it and have it removed as soon as possible.
- Don’t Miss Payments or Default: Nothing hurts your credit worse than missing payments and eventually defaulting on a loan. If you’re going to be late with a payment, notify your lender and ask them not to report it to the credit bureaus.
- Avoid Late Fees and Interest Charges: You can avoid these costs by paying your credit cards in full and on-time every month. This will also boost your credit score.
- Use Your New Card Responsibly: By not abusing credit, you’ll be granted more credit at more favorable terms. Credit is a privilege that you don’t want to have taken away.
- Shop Around for the Best Card Offer: There are credit card issuers with better terms than their competitors. Check out at least three companies to find the best one for you.
How to Get Your First Credit Card?
You can get your first credit card by following these steps:
- Determine whether student credit cards are an option for you
- Compared secured and unsecured starter cards
- Limit your search to cards with the lowest fees
- Choose the best offer for your needs
- Confirm you have enough income
- Typically, you won’t need documentation to get a credit card approved; only the application needs to be submitted. However, loans will require additional documentation
Secured vs. Unsecured Cards
Secured and unsecured credit cards can help you build credit from scratch. These are a few things to know before applying:
- A secured card requires you to deposit money upfront, which then becomes your credit limit
- It is much easier to be approved for a secured card
- Activity on both types of cards is reported to the credit bureau
Establishing credit takes time, but following the steps above can shorten the time frame. Start building credit slowly but steadily, and you’ll be able to secure better borrowing terms, nicer places to live, and better jobs. Be sure to make on-time payments, as they make up the bulk of your credit score.