How to establish credit when you're starting out

How to establish credit when you’re starting out

Whether you’re just starting out or starting over, establishing a credit history is an integral part of building up your credit report and increasing your credit scores.

But, things aren’t always as easy as they seem.

A credit card is the best way of quickly establishing credit and growing a credit score but, how do you get approved for a credit card when you don’t have any credit?

The answer is pretty simple, there are 3 things that you can do to establish a positive payment history.

1. Secured Credit Card
When you can’t get approved for a regular credit card, a secured credit card is a great option. A secured card works the same way a regular card works but, requires a security deposit.

You give the credit card company a $300 deposit and they give you a credit card with a $300 credit limit. If you use the credit card responsibly for about 6 months, the credit card company will usually refund you the security deposit and the card will become unsecured.

A secured credit card is a great way of creating trust with lending institutions and building credit when you’re just starting out and establishing your credit.

Just remember to pay your bill on time every month and keep your balance at 20% of the credit limit or less.

If you opt to apply for a secured credit card, get a good one that will grow with you and doesn’t have any fees. Capital One has a great secured credit card with no annual fees, here’s a link: https://www.capitalone.com/credit-cards/platinum-secured/

2. Authorized User
If you have a friend or relative that has a credit card with a good payment history, they can add you as an “Authorized User” on their account, and their entire payment history will report to your credit report. Sometimes known as piggybacking, this is a fast and simple way to establish a credit history

Just remember that Authorized User accounts are not forever, they can be removed at any time, that is why it is important that you use this temporary increase in your scores to open up a credit card in your name that you control, which may then report to your credit reports for the rest of your life.

3. Self-Reported Accounts
There are services like Experian Boost that will allow you to report utility accounts and rental history to your credit reports. Experian accepts accounts from cell phone bills, Netflix, Spotify, etc… which will report in your payment history, increasing your scores, and allowing you to get approved for a regular credit card.

Establishing credit doesn’t have to be difficult or confusing. If you have any questions about establishing credit or increasing your credit scores call us at 800-750-1416 for a free consultation.