Have you ever heard of the expression, “No credit is worse than bad credit?” Like most people, you’ve probably thought the complete opposite. After all, isn’t it better to have no credit at all than to walk around flaunting a lousy credit score? However, this rationale is just not true. Yes, it’s true that possessing poor credit can severely damage your financial standing, but if you are ever seeking a loan to purchase a car or new home, lenders will want you to demonstrate that you have a solid credit history.
If you’re wondering how you begin to build your credit and what measures you need to take to get there, you’ve come to the right place. Many people avoid building a credit history altogether, worried about falling into the pitfalls of being brandished with a bad credit score. The good news is, there’s plenty of positive actions you can take to move your credit standing in the right direction.
Examine How You Got Here
For starters, it’s best to gain a strong understanding of why you don’t possess a credit score to begin. For instance, maybe you just graduated high school or college and haven’t had the opportunity to engage in credit-related activities. This can be attributed to the fact that you have yet to accumulate any student loan debt. Or perhaps, you never needed to apply for your own credit card. Similarly, you may have just relocated to the States and therefore, have to build everything up from scratch. Whatever the case may be, not having any credit can work against you as you navigate through your life and career. It’s time to start working on eradicating this.
So, what should you do to build up your credit?
Get a Credit Card
The most comfortable place to start is to obtain a secured credit card. A credit card may seem like a frightening item to possess because of all the stories floating around about people submerged in credit card debt, which can quickly cause your credit score to plummet. However, owning a credit card means exercising financial responsibility. The critical thing to remember is if you’re going to make non-essential purchases, like grabbing yourself a shiny new flat-screen TV, and you don’t actually have the means to pay for it, then you are putting yourself at risk for falling into credit card debt. Instead, you want to leverage your credit card for things you usually budget for, like groceries or gas, to ensure you never miss a payment.
Unsure of what type of credit card to get? First, you’ll want to look for a credit card that doesn’t carry any annual fees, as this additional expense could be more than you can afford. Another thing to consider is applying for a credit card at a store you typically frequent, like TJ Maxx. A majority of major retailers offer credit cards, and it’s a great place to start if you know you purchase goods from one particular place consistently.
Using credit cards for gas is also a smart investment. Say every time you go to the gas station, you usually hand the cashier a twenty-dollar bill. If you use a credit card instead and immediately pay off the money you used for fuel, it’ll help you begin building your credit and help boost your score in a positive direction. It’s imperative to keep in mind that if you’ve given yourself a $500 spending limit, that you adhere to that maximum. Otherwise, you will find yourself overspending and unable to pay owed funds, which will quickly get you into trouble.
If you are just now starting, it may be a good idea to enlist the help of your parents. If they possess good credit, they will be able to co-sign for you. Having this work alongside your own application will help as well.
Another highly recommend tip to boost your credit is to lease a car. Now, you may have heard that owning a car is the way to go. Alternatively, you may have certain preconceived notions about leasing, but if you lease a car, it opens up a line of credit and allows you to demonstrate your ability to make monthly payments on time. By doing so, it’ll have a direct impact on the strength of your credit score.
Make Payments on Time
If you are a student who had to take out a loan to get through college, you are not alone. Due to the cost of American education, many young adults are forced to apply for government assistance to afford to obtain their degree. Although loan services do not require any payment while you are still pursuing your education, you’ll typically begin receiving monthly bills between six months and a year of graduating. Making steady payments to your student loan is essential for not only building a credit score but improving a poor credit score. If feasible, try to pay more than the minimum balance on your bill each month. This will help you avoid racking up an astronomical amount of interest and paying back double what you originally borrowed from the loan institution.
Another tip for those looking to build their credit is to make utility bill payments on time. You probably see a trend here, but it’s important with all bills to ensure you pay them on time. Whether it’s your car, student loan, rent, or medical bills, anything that you neglect to pay or underpay will hurt your credit score. Also, considering you are trying to build up your credit from scratch, you want to condition yourself to form good habits.
Don’t Stress, Learn as You Go
If all of this makes you a tad nervous, don’t be. You may feel like you are setting yourself up for failure, but that’s not the case. You do not need to worry about getting credit cards and putting yourself in debt. By making a plan and budgeting accordingly, you’ll ensure that your financial picture remains in a healthy state. If you get a credit card, recognize that you are going to use it only with money that you already have to pay for things. What you don’t want to do is use your credit card responsibly on outrageously expensive items that you know you will not be able to pay off quickly. This will set you up on a bad path where you find yourself opening more credit cards just to be able to compensate for your everyday necessities. Then you will get to the point where your credit is so bad, that you won’t be able to apply for loans or mortgages. Be smart with your journey to good credit!