When I was dating my wife, we talked about combining our finances. We had just graduated from college, and I had just moved in with her and a friend we had met in college.
When I asked her what her credit score was, she looked at me with some thought.
She said, "I'm not sure." "I have never seen it."
There's nothing to find, it turns out. After her late grandfather gave her a lot of money for college, she had a short adult life and paid for everything in cash. She has no credit cards, loan balances, or other lines of credit that can be found.
We worked on her credit for almost a year to get it to a good level, and I'm happy to say that our scores are almost the same now. Still, her story is a warning about what can happen if you don't do anything to build a good credit history.
Even if you haven't finished college, you don't have to end up in my wife's situation. You can start to gain the trust of students by doing any of the following.
Let's talk about how to start building your credit.
Five ways to improve your credit rating
If your parents use a credit card, any child can be added to the list of authorised users. So, you can use the card while the bank card is still responsible for payment.
You can "ride" on the credit records of your parents who have been around longer. The payments you make with this card will be added to your credit report, so you can build credit without doing anything else. This works best with cards that have been in good standing for a long time.
Your parents don't have to give you a copy of the card or even tell you the number. You can improve your credit score even if you don't buy anything.
To become an authorised user, you need to ask your parents for permission. Make sure your parents will pay on time and know their "financial habits." If you don't change, you will also be hurt.
Apply for a credit card with a deposit:
You can open your own card if you can't become an authorised user. Most of the time, a secure credit card is the only option for people with little credit history.
Guarantee cards usually require a security deposit of between $49 and $200, which is used as collateral. This deposit will become your credit limit, so you and the lender won't be at much risk. The credit limit on the security card is very low, so it can only be used for small purchases.
Your credit score is heavily affected by how much of your credit limit you use. This is also called how much credit you use, and if it's more than 30%, it will hurt your credit score.
For example, a secured credit card with a limit of $100 can't have a balance higher than $30. You should also pay off your whole balance by the due date or before.
The best way to keep your credit in good shape is to only use the card for short-term bills like Netflix or Spotify. Set up recurring payments from your bank account to your security card so that you never forget to pay.
Some secured credit card companies, like Capital One and Discover, will let you check your credit score for free so you can keep track of how it's changing.
Choose a credit-building loan:
The only reason to get a credit builder loan is to improve your credit score. Here's how it works.
First, get a loan to build your credit. The amount could be anywhere from $500 to $1,500. You won't get the money right away like you would with a traditional loan. Instead, you start paying a small amount every month, which usually takes 12 to 24 months. At the end of the term, you will get the loan amount minus some fees, which are usually less than $100.
In exchange, the company that gave you the loan will tell all three credit bureaus about how much you pay each month. Your credit score will go up, but the risk to you or the lender is low, just like when you use a security card.
Credit line loans are a great way for students to build credit because you don't need a credit history to qualify. To apply, you must be 18 or older, have a Social Security number (SSN), be a US citizen or live in the US, and have a bank account or debit card.
Credit builder loans are different from most other types of debt that a student might try to take on because they don't need a client. This is a big selling point if you want to be financially independent from your parents.
Paying rent can help you get credit:
You can build credit in other ways besides getting a loan from a credit builder or getting a secured credit card. Connect your rent payment to your credit score.
This option, however, requires you to sign up for and pay third-party services to verify that you paid your rent and report it to the three credit bureaus.
Some services, like Rental Kharma, charge a one-time fee to get started. Other services, like RentTrack, charge a $9.95 monthly fee. Some people ask the landlord to sign up in their system if the terms for both of them are getting worse. This is bad news.
Pay your bills:
Paying your utility bills on time won't help your credibility, but not paying them on time will hurt it. These late payments could be sent to collections, which will hurt your credit score and show up on your credit report. Cell phone bills and library fines that you don't pay on time can also hurt your credit.
You can pay by hand and use your phone or Google Calendar to set reminders. Choose to have your provider send you a bill reminder via text message or email.
A lot of companies help with the automatic payments. Which means that the money will be taken out of your bank account automatically. This is the easiest option, but you should still check it twice a month to make sure the payment has been made.
Make sure you have enough cash in your bank account before you take money out. If you don't, you'll overdraw the account. This will lead to a refund of the payment and, in the long run, more expenses.
Make sure to start young and build up your credit slowly.
