It’s a classic Catch-22. How can you build credit when you have no credit history? Young adults often face this dilemma. For example, a great way to build credit is to consistently pay your credit cards bills on time, but how do you get a credit card if you have no credit?
Having a good credit score is key to paving the way to your future financial success. Without good credit, you may have a difficult time opening a credit card, getting a loan, buying a home, and more. It can even make it harder to get a job. And if you are given credit, you’ll likely pay higher interest rates on it than people with higher credit scores, which can cause you to accumulate debt.
So here are some tips for building your credit.
Pick the right kind of credit card
Even without much of a credit history, you may be able to get several types of credit cards. There are credit cards specifically for college students, for example, such as our Visa Signature College Real Rewards Card. If you have a car and have to pay for gas anyway, a gas card can be a good way to start building credit. Retail stores often offer their own credit cards, which may have high interest rates, but are typically available to people with imperfect credit. You may also want to consider getting a secured credit card, which requires a deposit to get a line of credit. Once you’ve proven you are regularly paying your bills on time, you may get your deposit back.
PRO TIP: Set up automatic credit card payments to ensure that you never miss a payment. Also, try to manage your spending so that you can pay your card off in full each month if possible, so you won’t have to worry about paying interest.
Become an authorized user
Becoming an authorized user on someone else’s credit account is a fast way for you to start building credit – just be sure the person who’s account you are using has a good credit score and is responsible. Also, check to make sure that the card you’re using reports their data to the three major credit bureaus (Exquifax, Experian and TransUnion), so your credit score will actually improve.
Open a second credit card
Once you’ve started to build up a positive credit history with your first credit card, you may want to consider getting a second. Multiple credit cards not only increases the amount of credit available to you, but, if you pay them off instead of running high balances, you can lower your credit utilization ratio which can improve your credit score. You can also get different types of rewards – such as cash back or airline miles.
PRO TIP: You can also improve your credit by asking your existing credit card companies to increase your credit limit.
Other options
If you don’t want to open a credit card, you can still improve your credit by paying your rent and utilities on time. There are many ways to report your rent payments to the credit bureaus to prove that you pay your debts, so take advantage of those services. You can also do the same with your phone and utility payments through a service called Experian Boost.
Find a trusted partner
Finally, find a trusted financial partner who can provide you with the financial services and advice you need to succeed throughout all stages of your life. At Valley, we can provide you with the financing you may need, financial planning services, and the advice and guidance to help you every step of the way. Visit Valley.com to learn more or contact us.
