By JENNA LEE
Every credit journey has to begin somewhere. And while it may seem impossible to begin your own when creditors keep denying your applications due to your lack of credit, generations of consumers have proven that it IS possible to build your credit from scratch. Here are some tips to get you started:
Consider getting a credit card
If you were denied credit in the past, it may have been because the cards you applied for required a high credit score for approval. When you're just beginning to build your credit, consider starting off small and looking for options available for those with little or no credit:
- Secured credit cards can be great for building credit because almost any applicant can qualify for them, as they're backed by mandatory cash deposits. In other words, the cardholder is required to make a deposit to help remove the risk of default for the issuer. Just be sure that the company reports the card to the credit bureaus so your positive payment history can help build your credit file.
- Student credit cards can be great options for young consumers who are just starting to build their credit history. These cards typically offer higher acceptance rates and may even come with promotional offers and rewards. The drawback is that they usually have lower credit limits and higher interest rates.
- Retail credit cards are another option commonly used to build credit. While they're usually easy to get and can help consumers save money at their favorite stores, these cards often have low credit limits and interest rates that are considerably higher than non-retail cards.
- Asking to become an authorized user on a close family member or friend's credit card is also a great option to consider. Since the card's history is usually reported to the credit bureaus, if you and the card-owner use it responsibly, it should help the both of you. However, keep in mind that the opposite situation is also true-- if either of you miss a payment or rack up a lot of debt on the card, it could hurt both of your credit histories.
Getting a credit card should be done with care and consideration. As with any major decision, do some research about the different options out there. You can check out reviews to see what people are saying about the cards you're interested in and read the fine print so you understand the fees, interest rates, reward program details and other specifics. In short, know what you're getting into. Lastly, keep in mind that if you're under 21, you'll need to have either a co-signer or a verifiable income that proves you have the means to repay your credit cards.
Use your credit responsibly
Once you receive your first credit card, it's important to get your credit history off to a good start. Keep in mind these smart credit habits:
- Consider paying your card in full. Contrary to popular belief, you don't need to carry a balance to build credit. We're sure you don't enjoy wasting money, so as often as you can, consider paying your entire balance to avoid paying interest on purchases.
- It's important to pay your bills on time. Late payments can stay on your credit reports for seven years and wreck your score, so try to make each payment on time.
- Try not to max out your card. While you may be excited about receiving your first credit card, don't be overzealous and proceed to test its limit-- it could make it look like you're desperate for credit. Instead, try to use only one to 30 percent of your available credit. This looks good to creditors because it shows that you use credit but aren't overly reliant upon it.
Unfortunately, it can be much easier to destroy your credit than to fix it, so try to look at this new beginning as an opportunity to form good habits and start your credit history off right. The time and effort you put into building this solid foundation might eventually get you the best cards, loans and rates and may even end up saving you money. Good luck and happy building!
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