Building a credit history is a little like getting your first job. Everyone wants you to have experience, but how do you get experience until someone gives you your first job?
Additionally, building credit takes time. Yet, young adults are often expected to already have a strong credit history before renting an apartment or buying their first car.
Luckily, there are some easy ways to build credit and improve your credit score.
Getting Started with Credit
A lot of the same tools for teaching young people about financial wellness are also effective in building a credit history:
- Establish deposit accounts, including savings and checking
- If still a dependent, consider making a child (age 16 or older) an authorized user on a parent’s credit card, subject to the card issuer’s requirements
- Look into a student credit card, which are designed for new users and often come with a lower credit limit and easier qualification requirements
- Once 18 years old (usually after high school), a young adult can apply for their own credit card
- Report rent and utility bills using a service or program that reports your on-time phone, utility, and/or rent payments to major credit bureaus
Remember that building a credit history can give you a good credit score or something less than ideal. It’s important to follow a few rules of thumb to make sure that your credit history has a positive effect on your financial future.
- Start small. Use credit for basic expenses rather than big purchases. Start by paying for groceries every month with your credit card, for example, and then pay off your card in full each month. Save up for big expenses or out-of-budget splurges rather than using credit and paying interest while slowly paying off that big purchase.
- Pay on time. Payment history is the biggest factor in determining your credit score. Use tools like online Bill Pay to schedule payments.
- Pay in full whenever possible. It’s more important to pay the minimum on time than it is to pay in full, but clearing out your balance on a bill or credit card every month can make a big impact on improving your credit score. Plus, it helps avoid paying interest.
- Keep balances low. An industry standard recommendation is to use less than 30% of your total credit limit. That’s not always possible, especially at first when your first credit card will come with a low limit that will rise slowly over time. However, in general, it’s good practice to try not to max out your credit.
- Limit new applications. Applying for new credit may temporarily lower your credit score due to a hard inquiry.
- Track your progress. Use Lake Ridge Bank’s Credit Sense feature as a free and secure way to monitor your credit score and learn more about what behaviors and actions affect your credit.
Building a good credit history is possible with patience and persistence. But, you don’t have to do it alone. Contact your local Lake Ridge Bank to talk with one of our personal bankers about steps you can take now to build a strong credit history.
