Supposing you just finished high school and are looking for your first credit card. You will first fill out the application form and then wait for a response from the issuing bank. Unfortunately, you are rejected because you have no credit history.
But how do you build a credit history? You can use some of these techniques to build credit without a credit history.
Among the simplest ways on how to start building credit for the first time is by becoming an authorized user of a friend or family member’s credit card. When you become an authorized user, you can piggyback off the primary account holder’s credit. Another advantage of becoming an authorized user is that it gives you zero liability and, therefore, a less risky way of building credit.
However, before becoming an authorized user, you must ensure that the account holder is responsible for how they use their credit card. It will not look good if you become an authorized user of an account with debt or late payment history, as this could ruin any future credit plan you may be planning to build.
You also need to exhibit responsibility on your side. You don’t want to be someone who spends money on another person’s credit card and has no way of repaying.
Applying for a secured credit card can also be helpful when starting to build credit for the first time. A secured credit card allows the user to deposit a certain amount of money into their account. This deposit gives you financial power as it can be used as the credit limit on your card. Although the limit on your secured credit card may not be very high, keeping a good track record should help you get an ordinary unsecured credit card.
A secured credit card resembles a secured credit card in various ways. It allows you to receive a credit limit, incur interest charges and earn rewards. The main difference is that an unsecured credit card requires you to make a security deposit to get a line of credit. Typically, the amount you can deposit starts from $200, which becomes your credit limit.
You could also consider seeking a small secured loan from the bank and repay it over time if you are looking to start building credit for the first time. However, this should be your last option as you would have to repay the loan with interest. With a secured credit card, you can avoid paying the interest rates by paying the bill in full every month.
Did you know that banks give you alternatives if you don’t want to use a credit card to build your credit? Several financial institutions offer a variety of credit-building tools, although these require one to pay a monthly fee. Such services allow you to get credit for paying your monthly utility, cell phone, and service streaming bills on time.
With access to these services, you simply connect your bank account(s) to pay your bills, verify the data and confirm the details that you want to be added to your credit file.
Everyone benefits from a strong credit score which will not only help you the next time you want to take a loan for a credit card. It will also influence your insurance rating or whether you can get an apartment or a job with some employers. So, establishing credit can give you financial power in the years to come.
One way you can demonstrate responsible use of credit is through credit. Credit cards, home mortgages, and auto loans are some of the best examples of credit. You can check your credit score once every four months to ensure a good credit score. Either way, compare your credit report and credit score to be sure there are no mistakes.