How to Build Your Credit: Tips for Getting Started!
Are you starting out and wondering how to build your credit? We’re here to guide you with straightforward strategies to enhance your credit score!
Understanding Credit Building
Credit is something we all need, yet many of us are unsure how to build it. While some get a head start in their youth, others only consider it when facing high interest rates on major purchases like cars or houses. To avoid such surprises, it’s important to learn effective credit-building practices. Ready to transform your credit knowledge into an excellent credit score? Let’s dive into how you can achieve that!
How Long Does It Take to Build Credit?
Credit building is a gradual process. Typically, it takes about three to six months of credit activity before impacting your credit score. Patience and consistency are key to seeing positive results.
What Are the Different Ways to Build Your Credit?
There are many ways to build your credit if you work at them. However, no matter how you choose to do it, you will be able to reach your credit score goals!
- Opening a Bank Account: Your First Step
A bank account is foundational. It not only facilitates financial transactions but also strengthens your relationship with the bank, paving the way for future credit opportunities.
- Credit Cards: A Primary Tool
Credit cards are pivotal for building credit. This one is a big ‘ole DUH, right? But how can you get a credit card without credit? A starter credit card—or secured credit card—is your answer. They’re not the flashiest of credit cards, but they will let you get your foot in the door. They usually have a very low credit limit, and some of them require a deposit. Just make sure that you choose one that doesn’t have an annual fee and you’ll be good to go.
Once you get a credit card, remember to follow these key practices:
Paying your bill in full and on time to avoid interest.
Maintaining a credit utilization ratio below 30% (E.g., If the credit limit on your card is $1000, only charge up to $300 during the billing period).
Setting up automatic payments to never miss a deadline.
- Family Support in Credit Building
Family can play a crucial role in helping you build credit, especially if they have strong financial standing. Consider these options:
Authorized User: Family members can help you build credit by adding you as an authorized user on their card. This allows you to benefit from their credit history. It’s an excellent option if you’re not eligible for your own card yet. However, be aware that any missed payments or high balances on the account can negatively impact your credit too. Parents, ensure your credit is strong before doing this to avoid harming your child’s credit
Co-signing Credit Cards or Loans: If you need a credit card or loan but lack credit history, a family member can co-sign for you. This helps you become the primary cardholder or loan recipient, kickstarting your credit building. Be mindful, though—your co-signer is liable for any debt you can’t pay, and it affects their credit too. So, always manage your finances responsibly to protect both your credit and your family relationships. Once your credit improves, consider refinancing to release your family member from the obligation.
- Building Good Credit Habits
Lasting credit improvement comes from consistent, smart habits, such as:
Don’t apply for multiple credit cards or loans within 6 months of each other. When you fill out those applications, it will cause your credit score to dip a little bit temporarily. It’s not a big deal when you just apply for one thing, but when you apply for multiple loans or credit cards in a short time span, it can add up and affect your credit score negatively.
Keep your unused credit card accounts open unless you have a very good reason to close them. Closing out a line of credit can hurt your credit score. It lowers your credit utilization rate and lessens the average account age. If you no longer want to use a credit card and don’t want to be tempted by it, then shred your card! This will keep you from being able to use it, but also allows you to keep the line of credit.
Pay all your bills on time—even if they’re not loans or credit card bills. If an unpaid bill ends up going to a collection agency, then that will show up and hurt your credit score.
Seeking Financial Guidance
For further financial insights and personalized advice, consider setting up an appointment and talking to:
- Financial Advisors
- Mortgage Lenders
- Your Local Bank
- Yukon Government Financial Aid Supports
