3 Ways to build credit
You did it! All of those sleepless nights spent cramming for your exams have finally paid off. You, my friend, are a college graduate! You got a well-paying job before graduation and spent hours looking for an apartment. Time to finally move out and start being an adult!
You start filling out the application and then something catches your eye... your social security number is required. You think nothing of it and punch it in. A few days later, you call the listing agent about the apartment. You lost it. When you ask why, the agent tell you it's because you don't have any credit.
Sounds like a horrible situation, right? Unfortunately it happens more than you would like to think. The same situation often happens when you want to take out a loan for a new/used car to get you to your new job! Chances are that if you are in college (or your child is), there's a good chance that building good credit has not been the top priority. Lucky for you, we have some tips that will come in handy and hopefully help you avoid a situation like the one above.
Credit Building Tips!
1. Apply for a credit card
The most popular options for your first credit card would either be an unsecured credit card, a secured credit card, or a store credit card. When you are applying for any card, keep in mind that there may be some federal restrictions on certain applications. Your best bet is to be at least 21 years old when you start applying for cards on your own. Bellwether offers great secured and unsecured VISA cards to help build your credit, consider applying today!
Secured credit cards are backed by deposits, so if you make a $500 deposit to secure the card, your limit will be $500. You're effectively borrowing against your own money to show that you are credit worthy. This is an easy way to make sure that you don't get crazy out of control with your spending.
Store cards should definitely be the last option you have when applying for your first credit card. These are offered to you at almost every major retailer in the country. They are extremely easy to get approved for, since the company wants people to shop at their store. The downside of this is that the interest rates on these are almost always high, just so the company can justify the risk they are taking by approving just about everybody.
2. Become an authorized user on someone else's credit card
If you're away at school, there is a good chance that you're going to have to make some big purchases on your own (books, groceries, clothes). Depending on your household, you may be given a copy of your parents' credit card for these purchases. If that is the case, why not ask to become an authorized user on their account? So long as you remain responsible with your small purchases, and your parents keep up with the payments and maintain low usage, this will help to build your credit as if the card was yours.
3. Get a co-signer
If you get declined by applying solo, a co-signer, such as a parent, can help you get credit cards or other loans when you otherwise wouldn't be approved. This just presents you with more opportunities to begin building credit that may be different than some of the examples listed before.
Good Habits to Keep in Mind
Once you have your credit built up, it's important to maintain the health of it. Here are some habits that you should always keep in mind when using credit:
- Pay on time, 100% of the time
- Keep balances low
- "Low" being roughly 30% of your credit limit
- Don't open too many accounts at once
- Keep accounts open for as long as possible
- Check your credit report annually to make sure it's free of errors
- Use sites such as Credit Karma for monthly checks and sites like Annual Credit Report for more detailed reports
Remember all of these and you can pretty much guarantee that your transition to post-grad life will be as smooth as possible, and be sure to check back for more helpful blogs like this!