In the aftermath of the Great Recession and the credit crisis of 2008, many Americans decided to avoid credit altogether.
If you grew up in a world full of bankruptcies and foreclosures, avoiding all debt probably seemed like a smart strategy. But somewhere along the way, the economy recovered, you got a good job, and you were ready to manage a credit card, a car loan, or a home mortgage. At the time you needed credit the most, you realized that you had none.
Don’t worry. Building credit is much easier than you might think. Here’s some simple ways that you can get started:
There is a free and easy way for you to build credit without even applying for a loan. By becoming an authorized user on another person’s credit card account, your credit history will benefit from their good credit.
You don’t have to use the credit card very often, and it will help your credit score as long as it’s in your name and your Social Security Number, and the primary account holder has excellent credit. Just be aware that the primary cardholder will be responsible for all your charges.
Open up your own credit card account
Even if you have a limited credit history, or none at all, you can still open a credit card account.
For example, you can often be approved for a store charge card (like the Target Red Card) with little or no credit history, so long as you don’t have any negative information in your credit report.
These cards don’t offer very competitive interest rates, and you won’t receive a very large line of credit. But if you avoid interest charges by paying your entire balance on-time, these cards are an easy way to quickly build credit.
You can also consider applying for a secured credit card. Secured cards work just like any other credit card, except that they require the payment of a refundable security deposit before your account can be opened. Typically, the credit line you are extended will be equal to the amount of your deposit.
But once your account is opened, you’ll receive monthly statements and must make payments. You’ll incur interest if you carry a balance, and your security deposit will only be used if you default.
With a year of on-time payments, many secured card users are able to transition to a standard, unsecured card and receive a refund of their security deposit.
Here are our recommendations for the best secured credit cards.
Monitor your credit
As you build your credit, you’ll want to track your progress along the way. Doing so allows you to appreciate your progress while quickly alerting you to any minor problems before they become serious.
You don’t even have to pay for an expensive credit monitoring service (although, that isn’t always a bad idea). Instead, you could receive credit information from your secured card issuer.
Or you can get a free monthly report from Credit Sesame or Credit Karma.
Follow two simple rules
Finally, there are two simple rules that you must follow in order to build, and maintain excellent credit. First, pay all your bills on-time. Your payment history is the most important factor in your credit score, so there’s nothing more crucial than making all of your payments before the due date.
Second, carry little if any debt. In determining your credit score, your level of debt is nearly as important as your payment history. Use your credits as a convenient method of payment, but not as a means to finance purchases that you can’t afford to pay for immediately.
Going from having no credit to good credit is not difficult, but it won’t happen overnight either. By following these simple steps, you can build your credit faster than you may have thought.