When I was young, nobody talked to me about my credit score and how important it was. My family always preached: Cash is King and my parents were proud that they didn’t have any credit cards.
When I wanted to buy my first house, the bank pulled my credit and found…nothing. I had never borrowed any money so I didn’t have any credit score. Unfortunately, banks don’t subscribe to the Cash-is-King model and they certainly don’t want to loan money to anyone who has no track record of repaying it.
I lost out on buying that house and it took me months to figure my way around the mystery of getting a good credit score. I hope that these ideas from ChatGPT and Experian will save you time getting your score at least into the Good zone!
· Get a Secured Credit Card: A secured credit card can be an excellent starting point for building credit. Unlike traditional credit cards, a secured card requires a cash deposit as collateral, typically equal to your credit limit. By responsibly using this card and making regular payments, you demonstrate to lenders that you can handle credit responsibly, gradually establishing a positive credit history.
· Become an Authorized User: Consider becoming an authorized user on a family member's or trusted friend's credit card account. This allows you to piggyback on their good credit history. Ensure that the account owner has a solid credit record, pays bills on time, and maintains a low credit utilization ratio. While you won't be solely responsible for the account, it can still contribute positively to your credit history.
· Explore Credit Builder Loans: Credit builder loans are specifically designed to help individuals establish or improve their credit. These loans work by borrowing a small sum of money, often held in a savings account or certificate of deposit (CD). As you make regular payments, the lender reports your positive payment history to credit bureaus, helping you build credit over time.
· Establish Utility and Phone Bill Payments: Even without a credit card, you can start building credit by ensuring timely payment of your utility bills, such as electricity, water, and internet services. Some utility companies report payment history to credit bureaus, creating a positive credit record. Additionally, consider opting for a phone contract in your name, as timely bill payments can contribute to building credit history.
· Practice Responsible Financial Habits: Developing good financial habits is essential for a healthy credit score. Pay all bills on time, every time, to avoid late payment penalties and negative marks on your credit report. Aim to keep your credit utilization low, ideally below 30% of your available credit limit. Avoid taking on excessive debt and live within your means to demonstrate responsible financial behavior.
· Monitor Your Credit Report: Regularly checking your credit report is crucial, even as a young person with limited credit history. Request a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) annually. Review the report for errors, discrepancies, or signs of identity theft. Address any issues promptly by contacting the credit bureau to dispute errors or report suspicious activity.
· Seek Professional Guidance: If you feel overwhelmed or need expert advice on building credit, consider reaching out to a reputable credit counseling agency. These organizations can provide personalized guidance on credit building strategies, budgeting, and debt management. Be cautious of scams and ensure the agency you choose is accredited and reputable.
None of these ideas will help if you go crazy with your credit. Be cool, buy one or two things each month and always pay the full balance. One great idea is to make the whole process automated and easy. Pay for something – like a Netflix subscription – or pay a recurring bill – like your cell phone – with your credit card each month. Set up the credit card bill to be paid automatically from your bank account each month. Make sure there’s always enough money in the bank account to pay the bill and voila! You’ll be building credit with zero effort. Within a few months, you’ll see your score rising along with your confidence. Before you know it, we'll be shopping for your first home, woohoo!
Photo by Pixabay: https://www.pexels.com/photo/shopping-business-money-pay-50987/
