Your credit history allows lenders to have an insight into how responsible you are when it comes to managing your money. Your credit standing will ultimately determine how much you pay in interest and the types of loans that you have access to in the future. If you want to establish your credit, there are a few important steps to take.
1. Apply for a Secured Credit Card
Secured credit cards are ideal for those who don’t have credit and need to start somewhere. They are used for short-term use and require you to make a cash deposit before making different types of purchases. The cash is used as collateral and will allow you to begin building credit to ensure that you can move on to apply for an unsecured credit card, according to nerdwallet.com. Make the payments for several months before applying for a secured card.
2. Become an Authorized User on a Credit Card
Begin to establish credit by asking a spouse or a family member to become an authorized user on their credit card. You can have access to the card and will be able to build your credit without being legally responsible for repaying the charges. You can come to an agreement on the terms of your usage of the card and can agree to repay the money in full to the cardholder.
3. Request a Credit Limit Increase
According to experian.com, you can request a credit limit increase once you pay off some of the debt that you’ve acquired and decrease how much you utilize your credit cards. Shoot for less than 30 percent of credit card utilization to keep your credit card in good standing before you make the request. Avoid increasing your credit limit if you have a high balance, which can increase your risk of acquiring new debt.
4. Take Out an Auto Installment Loan
Applying for an auto loan will allow you to build credit while purchasing a new car and can significantly increase your credit score. Shop around for a good deal and review the terms carefully.
You can obtain an auto loan through the dealership or apply for one ahead of time through a bank or financial institution.
5. Establish Good Habits
Building credit will require you to establish good habits with managing the debt that you acquire. Make the payments on time or early and pay more than the required balance. You’ll also want to avoid closing any accounts, which can reduce the length of time that you’ve had credit history. Avoid opening too many credit cards and only make purchases that you can afford to repay quickly.