Many people find themselves with limited credit history, especially if they’re just starting out. Young adults working their first jobs, recent college graduates or those who have primarily used cash or debit cards for most purchases may have little or no credit history.
Though it can take some time, there are ways to start building credit and establishing your creditworthiness. Here are some tips on how to start building credit.
1. Start building credit with one new credit card to help establish your credit history
This may seem obvious, but one way to start building credit history is to get a credit card . Look for pre-qualification offers, which can mean you’re more likely to be approved. Check the mail or use a pre-qualification checker card issuers’ websites to see if you’re pre-qualified for any cards.
If you have a limited credit history, you probably won’t be able to get a card that offers the perks and rewards you want just yet. You also may not initially get the best interest rate on your first credit card, but if you pay the full statement balance by the due date each month, you may not have to pay interest on your purchases. Focus on using the card responsibly and making timely payments to build your creditworthiness.
2. Build credit with a secured credit card
Another way to build credit is with a secured credit card. Secured cards require a security deposit, which may be equal to the credit limit. The card issuer can use the security deposit to cover any outstanding balances if you miss payments.
You can still build a positive credit history even if you only make small charges on your secured card. Focus on making on-time payments and keeping the balance low or paying it in full.
3. Become an authorized user
Becoming an authorized user on another person’s credit card account can help you start building credit. If the primary cardholder is a responsible credit user, you may be able to benefit from their good credit use.
If the card issuer reports the authorized user accounts to the credit bureaus, activity on the account will show up on your credit report, which can help you build a credit history. If you’re not sure whether the card issuer reports authorized user activity to the credit bureaus, contact them.
4. Apply for a store card
Store credit cards can be easier to qualify for than traditional cards. Signing up for a store card at a place you frequently shop could be a good option to help build credit.
Store cards often have higher interest rates than traditional credit cards, so consider whether having a store card is right for you. If you choose to use one, understand that paying off the entire statement balance each month and on time is key to avoiding interest charges. As with any other loan or credit card, missing payments can negatively impact your credit score.
Remember that many store cards are limited to purchases at that store. If you want a card for more general purchases, a traditional credit card may be a better option.
5. Avoid applying for too many credit cards
Yes, having a credit card – and making timely payments – can help build your credit history, but applying for too many credit cards may work against you when you're trying to establish credit. Applying for several credit cards at once can signal risk to lenders. A credit card application typically causes a hard credit inquiry, which can temporarily lower your credit score by a few points. One hard inquiry won’t do much damage to your credit, but several in succession will have a bigger impact.
Do your research and, if you’re looking for a new credit card, try to find the one you're likely to be approved for.
6. Report your monthly rent payments to credit bureaus
Paying rent on time each month can help build your credit. Rental payments are not usually included in your credit report, so you may need to request that your landlord reports these payments through the requisite services. There are also third-party rent payment services that might report to the credit bureaus, though they may charge monthly or annual fees..
How long does it take to start building credit for a beginner?
It takes time to build credit. The major credit scoring models typically require several months of credit activity to establish a credit score. It may take longer to reach a credit score that can enable you to qualify for the loans and interest rates you want. Using the tips above, you can take your first steps to start building credit today.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
