How to Build Credit the Right Way

Personal Finance

Having good credit is important, and the sooner you start to build it the better off you’ll be. However, it can be tricky to get good credit, and even trickier to keep it.

When you build your credit history on good habits, you’ll be able to finance your education, purchase a vehicle and a home, and qualify for low rates on whatever financing you need. We have some tips for getting off on the right foot.

Understand the Early Difficulties

When you’re starting out, it may seem like you need to have credit in order to get credit. It can be difficult, but there are some options, even for beginners.

  • If you’re under 18 years old, ask your parents to add you as an authorized user on their credit cards.
  • If you already have a checking or savings account, talk to your credit union or bank about credit programs that may be available for those with no credit history. Some financial institutions offer secured credit cards, student credit cards, or credit builder loans.
  • If you don’t qualify for a major credit card, open a retail store or gas credit card instead. Once you’ve used the card to build your credit, you’ll have a better chance at qualifying for a major credit card.
  • If you’re still having trouble getting credit, ask someone who you know has good credit to help you by co-signing for a loan. By making monthly loan payments, you can show lenders you’ll be responsible with further credit.

Be Smart About Applying for Credit

Once you start building your credit, you may be bombarded with offers for more credit cards and personal loans. When you receive an offer, pay careful attention to interest rates and fees.

It’s also best to limit the number of credit cards you have at one time because you could easily run up more debt than you can manage.

Use Your Credit Wisely Once You Get It

The first rule of credit cards is to only use your card when you can afford to pay it off. Ideally, you should pay off your balance every month. If you decide to carry a balance, be sure to make your payments on time, and always pay more than the minimum so you can pay your card off quickly.

Don’t Max Out Your Credit

When you max out your credit cards, lenders become concerned about your ability to repay your debts. Plus, keeping high balances on your cards is damaging to your credit record. Keep your balance at or below 30% of the maximum in order to build good credit.

Keep Your Accounts for a Long Time

The age of your accounts matters when it comes to your credit score, and the longer you’ve had them, the better. Even if you’ve paid them off, leave your oldest accounts open, because they can increase your credit age and improve your score. As you’re starting to build credit, be aware that you won’t have a credit score until at least one account has been active on your credit report for at least six months.

Need help building your credit and planning for your financial future? Connexus is here to answer your questions and help you make a plan to meet your goals. Once you build a foundation of good credit, check out these 7 Ways to Improve Your Credit Score.