3 Ways To Build Your Credit
Last updated April 19, 2021
Building credit is important. It determines how trustworthy lenders believe you are based on your credit score. Having good credit can make it easier to rent an apartment or take out a car loan; but establishing credit can be a little tricky at first. You need to understand the fundamentals of financial literacy, then once you understand the basics, it’s time to establish your credit for the first time. Here are three ways you can build your credit wisely.
1. Become an authorized user
If you have a parent, guardian, or loved one that you trust, ask them if you can be an authorized user on their credit card account. Becoming an authorized user allows you to make purchases and can help you establish your credit. You will receive a credit card with your name on it, but the primary account holder is ultimately responsible for making payments. Before signing up to be an authorized user, have a serious conversation with the person whose account you want to join about expectations for immediately paying off any purchases.
2. Apply for a credit card
If being an authorized user on someone’s account is not an option for you and you are 18 years of age or older, apply for a credit card. Since your credit history is either new or non-existent, you may only be eligible for a secured credit card. A secured credit card requires you to make an initial deposit - typically $200 - $500 which becomes your line of credit. Don’t worry, you will receive your deposit back.
Here’s how this works: you apply for a secured credit card and the lender requires you to put down a $300 deposit; your credit card will have an available credit amount of $300. As you make on-time payments on the card, you start to build a positive credit history, which can boost your credit score and help you become eligible for larger amounts of credit in the future. Your security deposit will be refunded once your account balance is paid off and the account is closed, or when your secured credit card is converted to an unsecured credit card.
3. Apply for a joint account
A joint credit card allows two account owners to use the same credit card account, spend and update account details, and share equal responsibility for repayment. Applying for a joint account with someone you trust that has a high credit score and a good credit history can help you build your credit; however, there is a bigger risk applying for a joint account than being an authorized user. If the person you share the account doesn’t pay the credit card bill late, or racks up a bunch of fees, you are equally responsible and it could ruin your credit score. So choose someone who is responsible if you decide to establish your credit by going this route.