Here are a few ways to help build your credit history:
#1 Get familiar with credit reports
Your credit report is like your financial highlight reel, lenders and financial institutions use it to evaluate your creditworthiness. So, you’re going want to check it out yourself, too. Not only will it help you identify and rectify errors, it’ll also help you monitor your progress. You can access your report at any of the three major credit bureaus: Equifax, Experian, and TransUnion. And these days, it’s likely your bank will have some sort of credit monitoring service too.
When you receive your credit report, look for any misspellings, discrepancies, or outdated information. If you see something that doesn’t make sense — like a new account that doesn’t belong to you or inaccurate records of missed payments — make sure you haven’t fallen victim to identity theft. Then request corrections by contacting the credit bureaus directly and providing supporting documentation.
Pro tip:
Whether through your bank or one of the bureaus, see if you can sign up for a credit monitoring service that provides regular updates on changes to your credit profile. It’ll help you automate this step and keep you in the loop if anything changes.
#2 Starter credit cards and secured cards
If you don’t already have a credit card, consider easing into the process by opening a card designed for people with limited or no credit history. One good option is a starter credit card, which usually has a low credit limit to help beginners develop responsible borrowing habits (without the temptation of buying super expensive things they can’t really afford).
Another great option is a secured credit card. These cards require an upfront security deposit (typically equal to the credit limit) which serves as collateral for the card. In other words, you’ll have a built-in safety net in case you aren’t able to make a payment — because the lender can just use your deposit.
#3 Become an authorized user
Another pro move for credit rookies is to become an authorized user on someone else’s credit card. As an authorized user, you get to piggyback on the primary cardholder’s credit history. This means their responsible payment habits and low credit card balances can shine a positive light on your credit report. Just make sure to team up with someone you trust, who pays their bills on time and doesn’t max out their card. Remember, their credit actions can impact your score too. So choose wisely and communicate openly.
#4 Don’t use more than 30% of your available credit
Credit utilization refers to the percentage of your available credit that you’re using at any given time. And it’s one of the key factors lenders consider when assessing your creditworthiness. Basically, they want to see that you’re using credit responsibly and not relying too heavily on borrowed funds. The simple rule of thumb is to keep your credit utilization below 30%. So let’s say your credit card maxes out at $1,000, try to use no more than $300 at any one time. This shows that you’re using credit conservatively and not relying on it too heavily.
Pro tip:
If you notice that your utilization is creeping up towards that 30% threshold, consider making extra payments throughout the month to bring it back down.
#5 Pay on time, every time
When it comes to building credit, paying your bills on time is the golden rule that should never be broken. Each missed or late payment leaves a mark on your credit report that can be viewed by lenders in the future. So whether it’s credit cards, loans, or even those utility and rent payments, punctuality is key to establishing a solid credit history.
Why is paying on time so crucial? Well, lenders want to see that you’re a reliable borrower who can be trusted to fulfill your financial obligations. By consistently paying your bills on time and in full — you’re demonstrating responsible financial behavior, building up your credit score, and avoiding having to cough up more money to cover late fees and pricey penalty interest rates.
Pro tip:
To ensure you never miss a payment deadline, consider setting up reminders or automatic payments. Technology can be your best friend here. Take advantage.
#6 Diversify your credit portfolio
As you start to get the hang of responsible borrowing habits, you can take your credit score to new heights by showcasing your versatility in the credit game. Consider taking out different types of credit, such as credit cards, loans, and potentially even a mortgage or car loan. This demonstrates your ability to handle various financial responsibilities and adds depth to your credit profile. Just be sure to maintain a healthy balance and not overextend yourself. Only take on credit that you genuinely need and can comfortably manage. Because too much credit or debt can backfire, negatively impacting your creditworthiness.
#7 Report utility and rent payments
For years, utility and rent payments were often left out of the credit-building equation. But times are changing, and more services are emerging that recognize the importance of these regular financial commitments. So if you make on-time payments for utilities like electricity, water, internet, and rent, you might want to see if these services can report your payment history to credit bureaus. Just like diversifying your credit portfolio, it can add extra layers of depth to your credit profile and potentially boost your score.
Pro tip:
While some property management companies, landlords, and third-party services are now providing this option for free, others may charge a fee. So be sure to understand the terms and any associated costs before opting into a reporting service.
