Building credit for the first time can feel daunting, but it doesn’t have to be. There are many ways to do it, and you’re likely already doing some of them without realizing it. Here are a few tried-and-true tips for building good credit as a young adult:
You can check your credit report and score for free once a year at AnnualCreditReport.com. You should do this before applying for any new line of credit, like a credit card or mortgage. Your report will include information about your payment history, public records, and inquiries into your record by other parties (like potential employers).
If you’re starting from scratch, a secured credit card can be an excellent way to build up your credit rating. That’s because you simply have to put down a deposit (which is also the maximum amount of available credit) in order to get one. This deposit acts as collateral for the card issuer in case you default on payments, so it gives them more assurance that you won’t run up their losses if things go wrong. The interest rates on these cards vary depending on how much money and experience they think they need from you to be confident you will pay your debts on time. When you make consistent on-time payments, you will build positive credit history and may graduate to a more flexible and valuable unsecured card.
Another proven way to build credit is to find someone willing to add you as an authorized user on one of their credit cards. This person should be someone in your life who trusts you to use their card responsibly and whom you trust to make timely payments as well. Their good credit behavior will create positive credit history on your credit report as well.
Whatever path you take, try not to sign up for too many new accounts at once. If you’re just starting out, it can be tempting to take advantage of all the available credit cards on the market—but these offers could backfire on you if you end up maxing out your credit. When reviewing your credit report, lenders may perceive that you’re overextending yourself financially, making it harder for them to trust that you can handle more debt. So take things slow when applying for new accounts, especially in the beginning stages of building credit. Pay all your bills on time and don’t run up more charges than you can afford.
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