So how do you establish credit?
The key to establishing credit is opening the type of account reported to a credit-reporting agency (“credit bureau”). Generally, this includes credit cards, loans, and mortgages. Start small.
- Open a retail store credit card
- Open a secured credit card
- Ask a parent to add you on their credit card as an authorized user
- Use a cosigner to open a loan
Also, consider the benefits of accounts not routinely reported to credit bureaus. For example, a deposit account with a bank or credit union establishes a relationship that could be helpful down the road. Even signing up with a major cell phone carrier for service can provide creditors a glimpse into your credit management habits.
Once you have established credit, maintaining it is easy by following these simple tips:
- Pay on time, all the time
- Keep credit card balances below the credit line amount
- Pay off credit card balances monthly, or at least the minimum amount due (more is better)
- Avoid impulse spending
- Avoid applying for credit unnecessarily – too many inquiries can be negative
Used responsibly, credit paves the way for future services, and easier less costly borrowing.