Establishing Credit: Where to Start
Establishing credit can be a bit like looking for your first job. You need experience to be hired, but how can you gain experience if no one will give you a job? Potential creditors check your credit before approving you, but how can you get credit if you have no credit score?
In this second part of our credit score milestone series, we'll discuss how you can begin establishing credit.
Turn 18
In the U.S., you must be at least 18 years old to apply for credit on your own. Just being 18 is no guarantee of approval, though. Those under 21 must show proof of income or have a co-signer on the account.
Let Upwardli help
For those new to the U.S., establishing credit can be especially difficult as they don't always have some of the things creditors require, like a Social Security number. That's where Upwardli comes in! You don't need a Social Security number to start building credit with Upwardli.
Upwardli also doesn't require a credit check, so if you don't have any or much credit history, you can still be approved.
Experian Boost
Not all of the bills we pay are reported to the credit bureaus. Things like phone bills, internet, cable, and satellite services, utilities, video streaming services, and rent are typically not reported unless you default. This seems especially unfair when it comes to rent. Landlords check your credit report before renting you a place, but they don't report rental payments to the credit bureaus!
Experian Boost is a service that reports these payments so they can help build and improve your credit score.
Get a credit card
Getting a credit card is a great way to build credit; when used correctly, they don't result in debt. In fact, the right credit card used well can give you some great benefits, including cash back on purchases, travel perks, and consumer protections.
There are credit cards aimed at college students who may not have much credit history or income, and these can be good starter cards. There are secured credit cards for those who don't qualify for student cards or have damaged credit they're trying to rebuild.
Becoming an authorized user on another person's credit card can help build credit, too; just be sure that your activity is reported to the credit bureaus and separately from that of the primary account holder.
Take out a loan
Most federal student loans don't require a credit check, so if you have taken out a student loan in the past, you may already have some credit history as these loans are reported to the credit bureaus.
Credit builder loans are another type of loan that can help build credit. Auto loans, personal loans, and mortgages also help build credit.
Mind your credit
It takes around six months from the time you open your first credit account to establish a credit history and score. Credit can be destroyed much more quickly, and repairing damaged credit takes longer than building credit from scratch. So once you begin to establish credit, it's essential to keep your credit healthy:
Pay your bills on time: Late payments are the most significant factor in your credit score, and even a single late payment can cause a substantial drop in your score. Always pay your bills on time. Set a reminder on your phone or write due dates down in a date book a day or two before they're due. You can also schedule automatic payments for many bills either through your online bank account or directly through the vendor.
Keep your credit card utilization low: Credit utilization is the amount of outstanding debt compared to your overall credit limit. While keeping utilization under 30% is recommended, in order to avoid interest and prevent yourself from falling into debt, paying the total balance due on your credit cards each month is ideal.
Check your credit report: It's not unusual to find incorrect information on your credit report, including fraudulent information. Regularly checking your credit reports can help you find and correct this information so it doesn't hurt your credit score. You can get free copies of your credit reports at annualcreditreport.com.