Did you know that having a good credit history can make it easier to own an apartment, take out a car loan or rent a home? However, knowing how to establish credit for the first time can be hard.
You might be credit invisible which means you have no credit history. You might also have thin credit if your credit history is not enough to be scored. Whatever the case, the secret is building a solid credit history over time through responsible credit use.
Understanding the Fundamentals of Credit
Before you start building credit for the first time, you must get the fundamentals.
The credit score is a value that represents how likely you are to pay back a loan on time. The credit rating company uses the information on your credit report to calculate your credit score. The credit report is a statement that states your credit accounts, including those that are open and closed, the type of credit, and the repayment history for each.
Companies can use your credit score and credit report to predict how likely you are to repay your debts on time.
How to Establish Credit for the First Time
While there are many ways to start building credit for the first time, there are some essential things that you must keep in mind. Remember to use your credit responsibly, pay your bills on time and spend within your means.
Here are some ways to get you started.
If you are wondering how to start building credit for the first time, you could look for a friend or relative who can trust you with their credit card. When you become an authorized user, you get the financial power to make purchases. But the authorized card user is responsible for making payment.
You must therefore develop a plan on how you will be paying for the purchases you make because you don’t want to become a liability to family or friends. Also, ensure you become an authorized user to a person responsible for credit. Otherwise, being an authorized user to someone who doesn’t pay their bills on time would affect your credit rating in the future.
Opening a bank account can come in handy if you are looking to start building credit for the first time. It shows that you have a reliable relationship with a bank. It also proves that you are a resident of the country in which your account is registered. Also, a bank account can help you manage your money and pay your bills on time.
Lack of credit history can prevent you from getting a traditional unsecured credit card. However, if you have been using your bank account sensibly, you could qualify for a credit builder credit card. This is a type of credit card that is designed to help users to establish credit.
A credit builder credit card gives you the financial freedom to make purchases. You can use this card and pay off the balance monthly to create a good credit history. However, your credit score is higher if you don’t exceed 30% of the given credit limit.
Some financial institutions offer credit builder loans for those looking to build credit for the first time. These financial organizations offer small loans between $1,000 and $3,000, allowing you to build a credit history.
The lender deposits the loan into a locked savings account, and you must make small payments over an agreed period. Making timely repayments can help you establish credit.
There’s no correct answer to how long it takes to establish credit. However, be sure that there are no shortcuts. It takes time to establish good credit, and you can get there every time you use credit responsibly.