How Do I Go About Building My Credit History?
If you are new to credit and are trying to build a credit history, it could be daunting to start out. To generate a FICO® Score, you need at least one account opened for six months or more and at least one account that is reporting to the credit bureaus for the last 6 months. Read on to see how you can start building a good credit history.
Here are a few ways you can get started:
Apply for, and open one new credit card. Because you have little or no credit history, you may not get very good terms on this credit card - such as a high APR. However, if you charge small amounts and pay off the balance each month, you won't be paying interest each month so the high APR won't affect your bottom line.
Open a secured credit card. If you are unable to get approved for a traditional credit card, a secured credit card can help you build your credit history. This type of card requires you to deposit money with the credit card company. You can then make charges on the secured card up to the amount you have deposited.
Become an authorized user on a credit card. Again, engage with a family member who has good credit and would be willing to have you as an authorized user on their credit card. The card issuer will typically report the credit card performance to the credit bureaus on both the primary cardholder and the authorized user, which can help you establish your credit history. Note: if the primary cardholder misses payments or runs up the card balance, it will likely be posted to your credit report as well and could negatively impact your credit rating.
Periodically use your credit. Some people don't like to use credit — and that's fine, but it could result in you not meeting the minimum scoring criteria due to lack of recent activity. This situation can be avoided if you periodically use a credit card or other revolving credit (make a small charge and pay it off when the statement arrives) so that activity on that card is reported to the credit bureau.
Whether you obtain a traditional credit card or a secured credit card, it is important to keep low balances and pay off your balance each month and never miss a payment. This will help build a positive credit history. Since the U.S. economy is heavily credit-centric, having a valid FICO Score can help you be ready for those times when credit-related needs surface.