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The best ways to start building credit

A strong credit history can help you build a secure financial future. Here’s how to start

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Your credit touches so many parts of your life. It plays a role in your ability to obtain a credit card, qualify for an auto loan, or purchase a home. It even impacts certain insurance premiums and utility deposit costs. That’s why having a positive credit history is so important.

The thing is, you don’t start with good credit. You don’t start with any credit at all. Like so many things in life, it’s something you need to earn.

Thankfully, building credit is not nearly as formidable a task as some may believe. Here are a few practical ways to start building credit, even without any credit history.

In this article:

Secured credit cards

At first glance, secured credit cards look and function like their more well-known, unsecured credit card counterparts. You buy what you need now then repay your balance later. Just like unsecured cards, some secured cards offer perks like cash back and other rewards.

The main difference lies in secured credit cards requiring a cash security deposit to open. That deposit, often equal to the credit limit, backs the card, allowing the credit card issuer to use it to reimburse itself should the cardholder neglect to make a payment.

Establishing credit with a manageable credit limit

Secured credit cards are generally easier to obtain than unsecured ones, making them much more accessible to those with poor or little credit history. This ease is largely because you back the card with your own money.

One thing to note: Credit limits for secured credit cards tend to be lower than those for an unsecured card. However, this actually can be a benefit because a lower credit limit can keep you from spending beyond your means, making repaying your debts more manageable.

Building a solid credit score with timely payments

A secured credit card is also more beneficial than using a debit card, in terms of building credit. As with unsecured cards, credit bureaus receive reports of your secured monthly payments. Your payment history makes up 35% of your total credit score. It’s easy to see how paying your bills on time can go a long way toward building, improving, and maintaining good credit.

Becoming an authorized user

Building credit doesn’t have to be a solo venture. Teaming up with a trusted friend, significant other, or family member and becoming an authorized user on their account is another solid option.

As an authorized user, you get a credit card with your name on it linked to that person’s account. However, the official responsibility of paying the bills falls squarely on the shoulders of the primary cardholder. As such, this can be a more accessible, less stressful way to start building credit.

Obviously, going down this path requires a great deal of trust from all parties, so consider carefully the potential consequences, good and bad, of combining your finances in this way.

Boosting your credit score through shared credit history

While becoming an authorized user gives you access to a credit card, you don’t necessarily have to use the card for it to help your credit. Credit reporting agencies consider all activity, whether yours or the primary cardholder’s, when calculating your score. In other words, their good credit is your good credit.

Learning responsible credit card use from a trusted source

You can become an authorized user on anyone’s account, so long as they add you as such, and you meet the requirements.

Even so, think carefully about whose account to join. Their card use, whether positive or negative, will directly affect your credit history. Just as good credit history can improve your score, factors like a high credit utilization rate (above 30%) or a history of late payments can harm it, even if you weren’t responsible.

Teaming up with a trusted individual, such as a parent, another family member, or a close friend, is generally one of the best ways to start building credit. Ask someone who has a good credit history and manages their finances well.

Don’t just sit back and let them do all the hard work, though. Becoming an authorized user on their credit card account presents an excellent financial learning opportunity. The primary cardholder can teach you how to use a credit card responsibly, which can set you up for success once you’re ready to apply for a card of your own.

Credit builder loans

Getting a traditional loan with little credit history can be challenging. Credit builder loans offer an alternative to those looking to establish, repair, or build good credit.

Credit builder loans work differently than traditional loans. With a traditional loan, you receive the loan amount up-front and then make repayments. A credit builder loan, which you can get from community banks or credit unions, instead requires you to make payments first.

Your lender deposits those payments, which effectively become your collateral, into an account. In many cases, you get the funds, minus fees, after you pay off the loan.

Building payment history with structured time payments

Repaying a credit builder loan is similar to repaying a traditional loan. You make regular payments toward the loan amount, plus interest, in monthly installments over a set period. Following your repayment schedule allows you to demonstrate your ability to make payments on time consistently. In turn, you get to establish a positive payment history.

Enhancing your credit report through loan repayments

Like your credit card payment history, your loan payment history factors into your credit score. It’s part of that 35% mentioned earlier. Since credit builder loan lenders report all your payments to credit agencies, making on-time payments is crucial for enhancing your credit report.

A credit builder loan can also add to your credit mix if you have other forms of credit. It accounts for 10% of your credit score, so on-time payments demonstrate your ability to handle more than one type of credit. Building this trust reflects positively on your credit report.

Co-signed loans and credit cards

Another option is to ask a family member or friend to be a co-signer.

A co-signer is an individual who applies for credit with you, even if they don’t plan on using it. Someone with a solid credit history can improve your odds of approval for a loan or credit card. With access to credit, you can then begin building good credit yourself.

Keep in mind, your payment history will impact your co-signer. Missed payments can harm their credit history as much as it will yours. What’s more, if you default on your payments, your co-signer becomes responsible for those payments.

On a positive note, these risks can motivate you to be responsible with your new credit.

You can also consider a credit life insurance policy for protection should something happen to you, though there are pros and cons to that approach.

Credit monitoring and management

Monitoring your credit provides a couple of significant benefits as you work to build it.

For one, it allows you to see your progress, which can be motivating. Additionally, keeping a close eye on your credit reports makes it easier to spot and address any suspicious activity sooner. Your close scrutiny will save your hard work from going down the drain as you minimize the potential damage to your credit history.

Experts recommend checking your credit reports at least once a year. You can view your credit scores at any time using free online tools.

On top of this, consider taking advantage of credit monitoring services. These services keep watch over your credit reports for you. You can get notified of suspicious activity and take action right away.

Student credit cards

A student credit card is a type of unsecured credit card. However, it’s designed specifically for college students (full-time or part-time). You can qualify even if you have no credit history.

If you’re under 21 and don’t meet the requirements credit card companies set, or if you have no income, you will need a co-signer.

Student credit cards function just like any other unsecured credit card. Some even offer benefits like cash back.

However, credit limits are typically lower than standard credit cards, and interest rates are higher. Even so, they can be an excellent tool for college students to start building credit early on so long as you treat them responsibly.

Responsible credit card use

How you use a credit card, whether it’s secured or unsecured, can have a significant impact on your credit history.

Late and missed payments are only one factor. Believe it or not, you can make all your payments on time and still have bad credit.

One possible reason for this is because you have a high credit utilization ratio. You may carry high credit card balances, leaving you little available credit. Keeping your utilized credit to 30% or less of your total credit limit is essential to building and maintaining good credit.

You can also have bad credit even if you use your credit card sparingly. Not utilizing your credit means it’s lying stagnant. If you don’t want to use it frequently, at least use it to periodically buy gas, groceries, or your favorite coffee drink to show activity. Doing so continues your positive trend of using credit and making payments on time.

Reaping the benefits of a good credit score

While it does take some work, building and maintaining good credit can go a long way toward saving you money and helping you achieve a more secure financial future. Then you can protect that future with a term life insurance policy from Haven Life.

Worried your credit score might affect your ability to get life insurance? Good news: Your credit score doesn’t factor into your eligibility or pricing. In short, you can purchase a Haven Term policy at an affordable price now. Rest easy as you work to build your credit from scratch knowing your family is financially safe.

If you’re ready to take another step toward a secure financial future, get a free online life insurance quote from Haven Life today.

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About Jessica Moore

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

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Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

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