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Building a credit history can feel like a daunting process, especially if you're unsure where to start. Here are five different ways you can start establishing your credit and how each option works.
1. Become an Authorized User
Getting added as an authorized user on someone else's credit card account can provide an instant benefit to your credit score. Here's how: Once you're added to the account, the card issuer reports the entire account's history to the credit reporting agencies, which then add it to your credit report.
If your loved one has always paid on time and they maintain a relatively low balance, it can help you establish a limited credit history quickly, opening up more opportunities to build from there.
2. Get a Secured Credit Card
Unlike traditional unsecured credit cards, secured credit cards require an upfront security deposit, which is typically equal to your card's credit limit.
To build credit with a secured card, use it regularly and pay your monthly bill on time—and try to pay it in full to avoid interest charges. It's also important to keep your balance relatively low compared with your credit limit—the lower, the better for your credit scores. Make sure that any secured credit card you apply for reports to all three credit bureaus (Experian, TransUnion and Equifax) to benefit across all your credit reports.
In some cases, secured credit card issuers may convert your account to an unsecured card and return your deposit without requiring you to close the account.
3. Consider Taking Out a Credit-Builder Loan
Credit-builder loans are installment loans that function a bit differently from traditional installment loans. Instead of giving you the loan amount upfront, the lender stashes it in a savings account. You'll make monthly payments as outlined by the loan contract. Then, once you've paid the loan in full, you'll receive the loan funds.
If you're considering a credit-builder loan, it's important to make sure that the lender reports your payments to all three credit bureaus because not all do.
4. Have a Credit Card Cosigner
If you prefer an unsecured credit card but can't get one on your own, you may be able to have a loved one apply with you as a cosigner. Their credit history may be good enough to help you get approved.
Unfortunately, most major card issuers don't allow cosigners anymore, so you may find the other options easier.
5. Get Credit for Your Monthly Bills
Historically, payments to your cellphone provider, utility companies and subscription services haven't been reported to the credit bureaus. With Experian Boost®ø, however, you can get credit for those on-time payments.
When you sign up, you'll allow Experian to access financial accounts you use to pay bills. The service will identify eligible payments, and the ones you confirm will be added to your credit report. The result can be an instant increase to your FICO® Score☉ powered by Experian.
Manage Your Credit Well to Build a Good Score
As you use one or more of these methods to build credit, the most important thing is to manage your credit well. That includes paying bills on time, keeping credit card balances low and avoiding unnecessary borrowing.
Keep in mind, though, that you don't need to use all of these approaches to build credit. Even managing one credit card responsibly can put you on the path to a strong credit history.