Credit is an amazing word. It gets used for all sorts of things, like crediting a source in a research paper or giving your brother credit for not stealing all your Cheetos even though they were RIGHT THERE waiting to be stolen.
In the money world, credit is a big deal. Without credit cards, online shopping would be much harder, and without lines of credit like mortgages and car loans, a whole lot of people wouldn’t be able to afford houses or cars.
The word credit actually comes from a Latin word meaning belief or trust, which makes sense because when someone loans you money, he or she is trusting that you will pay it back. Credit scores were invented to represent how likely it is that you’ll do that.
Trouble is, credit scores are based on a lot of factors, all of which reflect your history using credit. Without a credit score, you won’t get money from most lenders. So, how do you get credit if you don’t already have it?
How do I get credit?
Creating a credit profile can seem like a Catch-22 because many credit-building sources require a credit score!
I remember thinking that this was confusing and unfair when I was first looking to build credit, too. Luckily, there are a couple of side doors into the world of credit that can help get you started at any age.
If you’re a minor…
If you’re under 18 in the US, you cannot qualify to borrow money or open a credit card of your own. However, there are still ways to start building a healthy credit record with the help of your parents or legal guardians.
Become a registered user on an adult’s card.
Registered users get access to the perks of the credit card, but are not responsible for paying for charges made on the card. Living the dream.
Of course, this option requires a lot of trust on the part of the person allowing you onto his or her account, so if you want to remain on good terms with this person, don’t go hog-wild with the credit card.
My dad did this for me when I was first starting out, and it was understood that the card was for emergency use only. Otherwise, I used my debit card. I’m so thankful now that I got the benefit of his years of credit background and good money management. It made getting my first apartment much easier. Thanks, Dad! 🙂
If you’re 18 and over…
Becoming a registered user is also an option for non-minors, but once you’re legally an adult, a lot of other options open up, too.
Have an adult co-sign on your first loan or credit card.
Co-signers are basically there to reassure the credit-givers that SOMEONE will pay them back, even if you flake out. This means they are on the hook for any money you borrow or charge if you don’t pay it back, so, again, don’t abuse this privilege if you want to keep your relationship with your co-signer healthy.
Get a secured credit card.
This one you can do all on your own! Secured credit cards are designed to help people build enough credit to get a real, big-person card.
To get a secured card, you’ll usually have to pay a deposit equal to what the card’s credit limit is. It then works just like a real card, including interest rates on unpaid balances. When you are ready to graduate to an unsecured card, pay off any balance on the unsecured card and you’ll get your deposit back.
If you’re interested, WalletHub has a nice list of 10+ Best Secured Credit Cards for 2017.
Report your rent payments.
If you’re living off-campus at college or just living on your own, using a service that reports your rent payments to the credit bureaus can help you build credit without needing a credit card or loan. You’re going to be paying rent anyway, so why not benefit from it?
These services typically charge you a fee for each payment they report or each month you use them, and some charge a set-up fee. However, in the long run, a higher credit score could save you much more money in the future, so a rent payment reporting service might be worth it if you can afford it.
You might need to get your landlord or apartment office on board, and not all rent-reporting services report to all three credit bureaus, so make sure you read all the fine print before shelling out any money.
Popular services include RentReporters, Rent Kharma, Rent Track, PayYourRent, and ClearNow. I have not personally used any of these services, so I can’t endorse any one of them over any other.
Take out a credit-builder loan.
Some banks and credit unions will loan small amounts of money to people with bad or no credit with the goal of building those people’s credit score.
There’s a catch, though.
When you get one of these loans, you don’t actually get the money. The bank puts it into an account, where it waits for you to complete the payments on it. THEN you get the money.
This is clearly not a loan for people who actually need the money for something right away. It really is only for building a payment history. However, the amounts are small, sometimes only $100, and the potential bumps to your credit are large, so if you are 100% sure you can pay all the installments, this could be a nice way to add some points to your score.
Don’t over-extend yourself trying to do all of these things in a hurry. Pick one or two ways you want to start building credit, and put those into action. If, after a few months, you’re still on track and want to explore other options, feel free.
Remember that no matter what methods of credit creation you use, the best thing you can do to boost your score is to make payments on time. Do that consistently, and your score will rise naturally.