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8 Tips for Building Credit – For the Beginner

Young Person Holding Credit Card

How do you build credit when you have no credit history? I’d like to tell you it is easy, but the truth is that building credit takes time (most things that are worthwhile do).

To help you get started, here are eight simple tips that will help you build and maintain great credit:

1. Open a secured credit card account—money you place in your savings account acts as collateral for your secured credit card. Paying down your balance on time will improve your credit score. (Just remember that missing payments will harm your credit score, just as it would with a traditional credit card account, so make those payments on time).

2. Only use your credit card to purchase things you can afford to pay off immediately—if you have a credit card, you can improve your credit score by paying it off every month. (You will also save money by avoiding interest charges.)

3. Once you have a credit card, hold onto it—it’s tempting to switch to a new credit card that promises low introductory interest rates or flashy rewards but opening and closing credit cards doesn’t reflect well on your credit score.

4. Get a job, keep it, and earn raises—your employment history is reflected in your credit report and could be used by future employers and lenders to determine whether you are a good candidate for a job or a loan. The better your employment history, the more creditworthy you appear to lenders.

 

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5. Apply for a credit-builder loan—a credit-builder loan is a lot like a secured credit card. With this type of loan, you deposit money into your savings account and those funds are held as collateral for the loan, which you must pay on time in order to maintain good credit.

6. Apply for a loan that is cosigned by a parent—this is an excellent option if you need a loan for college, a small business venture, or for other worthwhile purchases. If you are not able to secure the loan on your own, ask a friend or relative with good credit to cosign the loan for you. Paying down the loan on time will improve your credit.

7. Become a joint account holder on an established credit card account—begin proving your accountability by piggybacking on the loan of a parent, guardian, or other trusted friend. As long as the account is paid consistently and on time, their good behavior will reflect well on your credit report.

8. Check your credit score to see how you’re doing—check your credit score periodically. You can get one free report from each credit bureau each year. The three main credit bureaus are ExperianTransUnion, and Equifax. Monitoring your credit will help you maintain good habits as you build your credit score and will help you uncover inaccuracies or bad habits before they become a problem.

Practicing good financial habits is part of building good credit. Not only will these practices help you look better to creditors. They will also help you spend and manage your money more wisely throughout life.

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