If you’re new to the world of credit, or have a limited history with it, it can be tricky to get off the ground. Fortunately, there are ways to establish credit even if you don’t have any previous accounts on file. Here are five tips for doing just that:
Get a secured credit card.
A secured card requires an upfront deposit, which lets you build up your credit score without taking on too much debt. You can use it just like any other card and get rewards or cash back, but the spending limit is based on how much money you put down.
You can apply for a secured card online, usually in minutes. The application process will ask about things like your income and monthly expenses so that they can determine what size deposit (or credit line) will work best for you—there’s often no minimum deposit required!
Become an authorized user on someone else’s card
Authorized users get a few advantages. For one thing, you can use the card without having to worry about making payments on it or paying the average interest rate for credit cards. The credit card company will report the activity to your file and that will help build your credit history. Your credit score may even improve if you’re currently not using any other cards or loans for which you’re responsible.
Check your credit reports regularly
One of the most important things you can do to establish credit is to check your credit reports regularly. Credit reports are a record of your borrowing history and are used by lenders to determine if you are a good risk for a loan. They are also used by landlords to determine if you are a good risk for an apartment.
Checking in on these reports will help protect against identity theft and fraud, as well as provide information about what kind of payment history you have had in the past.
Become a joint account holder on a checking account or credit card
You can open a checking account (or credit card) as a joint owner with someone else. This enables you to build your credit history by having the name on the account and being able to make purchases. However, you must understand all of the terms of your agreement before doing so.
For example, if you don’t pay off the balance each month or maintain a certain minimum balance in your account, then the other person(s) on the account will be held responsible for any penalties incurred by failing to meet those requirements.
As professionals like Lantern by SoFi says, “Consumers with excellent credit (740+) usually pay the lowest effective interest rates, while those with fair or poor credit (580 and below) will pay higher rates.”
Find a cosigner for a loan
Find a cosigner for a loan. If you can’t get approved for a bank loan because you don’t have credit history, find someone who does and ask them to co-sign on the loan with you. They’ll be responsible for making payments if you default on the loan and they may have trouble getting approved themselves, so make sure they’re willing to take this on before asking.
There are a lot of ways to build your credit history, and it’s not as hard as you might think. If you’re new to credit or have had an unfortunate financial situation in the past, don’t despair—you can do it! You can also start by looking into some of these options given on online websites.
Also read Pros and Cons of Credit Cards