Best Ways To Build Credit
If you're just starting to build credit you need to know what works best and what to avoid. It's important to have a mix of different credit types including revolving accounts like credit cards and installment accounts like car loans, personal loans and home mortgages.
While you may not start out with a home mortgage, the good credit you build in the beginning will allow you to borrow money at low rates when you're ready to buy a home. Nowdays, credit history can also determine whether you get a good job, a decent apartment or even reasonable rates on insurance.
Even if you've never had credit get a copy of your credit report to make sure that some else's information is not mixed in with your report from a credit bureau mistake. More than half of all credit reports have errors and you don't want to apply for credit and have that kind of surprise. If you have any errors you'll need to get them corrected before trying to apply for any new accounts.
Get A Checking and Savings Account
After you know you have a credit report free of errors establish a checking and savings account with a local bank. Lenders look at checking and savings accounts as a sign of stability.
Opening checking and savings account is the first step to start building a financial history. You can do this even if you are under 18 as long as your parents agree and many banks have no problem with this. If your bank says no, you can either look for another bank or open a joint account with an adult with established credit.
Apply For A Credit Card
You need to be 18 to get a credit card in your own name because that's when you can be legally held to a contract. Apply for a credit card with only a small balance for best results. If you can't get a credit card in your own name you have a few other options.
One way is you can be added to a credit card as a joint or authorized user. For example, if your parent makes you an authorized user on their credit card, their credit history may be able to be imported into your credit file. If so, this gives you an instant credit record.
It's best to call the credit card company to see how they will report it to the credit bureaus. If the parent has a good payment history, it's a good idea because it's a great way to build credit quickly. But if they haven't, stay away from this option because their credit becomes yours too.
If this option doesn't work you can apply for a secured credit card. Secured credit cards require you to deposit money with the credit card company and your credit limit is usually what the deposit is.
You'll need to look at your card issuer carefully because some of them charge outrageous application or annual fees and very high interest rates. If you are a member of a credit union you may ask if they have a secured credit card. Credit unions usually have fair fees and interest rates and you may already have money with them that you could use.
Get A Gas Credit Card
Gas credit cards won't do as much to build credit as credit cards like Visa, MasterCard or Discover Card, but they're usually much easier to get. Your goal in the beginning is to get a mix of different credit types and a gas credit card works well for a different type of credit.
Just don't apply for half a dozen cards one or two gas cards is plenty. Applying for too many cards at once will lower your credit score so be careful. When you are building a credit history they'll do you some good.
Use your revolving accounts regularly but don't go overboard. For a credit score to be generated, you have to have had credit for at least six months, with at least one of your accounts updated in the past six months.
Using your cards on a regular basis helps to ensure that your credit report is updated regularly. If you get a credit card and never use it, the issuer could cancel the account. For best results for your credit score, try not to charge more than 30% of the card's limit especially if building credit is your goal.
It's very important not to charge more than you can pay off in a month. That's because you don't have to pay interest on a credit card to get a good credit score. It's also a good habit to pay off your credit cards in full each month so you don't overextend yourself.
The most critical part a good credit history is to make your payments on time. If you use these tips mentioned here, you can build credit history quickly and have a promising financial future.
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