How to Establish First-Time Credit
Your future financial success depends on establishing and maintaining a good credit rating. Until you’ve established first-time credit, though, it often seems impossible to get anywhere with creditors.
Young professionals are eager to start their finances on solid ground, but having no credit history makes this venture seem like a mountain you can’t climb.
Use the right tools and strategies that are available to you, however, and you can establish first-time credit in the lean years of your adult life.
Here’s how to establish a solid credit rating early, by using simple strategies to build a solid foundations for your finances:
1. Check your credit report
Before you know where you want to go, you have to find out where you are. Early credit files for young people won’t have many entries yet. Even so, identity theft and other credit complications are real dangers, so it’s important to monitor your credit report to make sure you’re starting out with a clean slate.
- Check your credit report as often as possible. Three major credit reporting bureaus allow you to order a free copy of your credit report once a year.
- The best way to monitor your progress throughout the year is to stagger your requests for credit reports. This way you can catch errors and mistakes quickly as they’re added to your file. You could request one report from each credit bureau every four months, for example, instead of getting all your reports at once.
2. Pay your bills on time
Payment history is one of the most important factors in your credit score. Pay bills by their due date each month, and you’ll be living well within your means in the eyes of creditors.
3. Establish a recurring bill in your name
Students often list certain monthly bills in their parent’s name. Instead, get a monthly recurring bill like a cell phone bill in your name, and pay it in full each month to establish yourself as a responsible person who handles financial matters well.
4. Find a person to act as a credit reference
You can ride the coat-tails of someone else’s good credit to establish a solid reputation for yourself. Have someone with a good credit stand in as an authorized user on your credit card or cosign a loan for you.
5. Get a student credit card
Credit card companies offer college students cards more easily than others with more credit history. Many college campuses have booths at student events designed to promote new credit card accounts with incentives and cash prizes.
6. Use credit cards regularly, but sparingly
A primary goal for obtaining credit cards in the early stages is to increase your credit rating, which means you need to use the cards to boost your credit score. Don’t go crazy, though; make small monthly purchases and pay the balance in full every month to slowly establish positive credit history.
- In particular, keep in mind that a credit card is not cash. Borrowing money from a credit card account means you’ll be paying a lot more in interest if you don’t pay the balance of your loan back on time. Only make small purchases that you can pay in full when the bill is due at the end of the month. Avoid the urge to overspend.
7. Create a monthly budget
Developing a lifestyle of wise financial decisions is one of the most important factors in maintaining a solid credit rating for life.
Creating a budget allows you to list your income and expenses, so you know what financial resources you have. Keeping track of these amounts means you’ll be less likely to put yourself in a credit bind.
This is an important time in your credit history, one that sets the stage for a lifetime of solid financial footing. If you abuse or misuse the credit accounts you initiate now, you’ll be creating a lifetime of financial bondage that may be difficult to overcome.
Use these strategies to establish a solid credit rating early, then applying those principles to a lifetime of fulfillment and good credit.