There are a lot of misconceptions floating around out there about how to build credit, and many of them are no better than that—misconceptions. If you really want to build up your credit when you don’t have any, or repair your damaged credit, follow these six proven tips.
Don’t bother becoming a co-signer or “authorized user”.
Years ago, you could build credit by becoming an authorized user on a family member’s credit card or co-signing a financial document with someone who had strong credit. You can still do these things, but they won’t do much in the way of building your credit. The credit bureaus have changed the way they calculate your credit score, and these things no longer hold much weight.
Don’t apply with a major credit card company to start.
Not yet, anyway. If you don’t have a strong credit history, you will likely not be approved for an account with the likes of Visa, American Express or Discover. And applying in itself dings your credit score, because it counts as an inquiry. While there’s a chance you could receive a “pre-approval offer” from one of these companies, we don’t recommend it. We’ll go into more detail on the reasons why in a minute.
Get a secured card first.
A secured card is almost like a debit card in that you have to first deposit money to use it. But unlike a debit card, the transactions on your secured card are reported to the credit bureaus on a monthly basis. The great thing about secured cards is that they make it difficult to dig yourself into any kind of hole. You can get secured cards with a very low minimum deposit, so you don’t need to have much cash on hand to begin using one. And as soon as you do, those transactions begin to work toward rebuilding your credit. Be sure to pay off the balance every month, showing the credit bureaus you’re a responsible user.
Pay on time, every time.
No exceptions! Also, make sure to actually use the card. That repeated cycle of charges and on-time payments is what builds your positive credit history. You don’t need to use it for every single thing you buy. A couple times a month is sufficient, or you might decide to use it for only certain things, like gas or groceries. Keep this up for six months to a year before moving on to the next step.
Apply for a major card.
Once you’ve had a secured card and have successfully used it for a year or so, it’s time to apply for a card from one of the major credit companies. You might not get approved for a huge limit, and that’s just fine. It’s the card that counts, and you can slowly build your way up to increasing your credit limit.
Keep up the good behavior.
Take all the steps you followed with your secured card and transfer them over to your credit card. Use your credit wisely and continue to pay on time every month. This is why using a secured card first is helpful; you learn good habits, and by the time you get a major credit card, following them will be easy!