As you start to pursue your financial dreams, you realize the importance of building good credit. From getting a credit card to buying a car or home — good credit can be super helpful for helping you meet your goals. But, where do you start?
Unfortunately, we don’t automatically start out with a good credit score, and it isn’t something we can build overnight. That’s why working on it as soon as you can is smart and forward-thinking.
In This Article
When you think about a credit journey, one of the first things that pops up is your credit score. A credit score is a number that represents your history of borrowing money, including your debt and payment history. Your score is used to help potential lenders determine whether they can trust you to borrow more money.
Credit scores can vary greatly, and when you’re first getting started, yours might not look great. But that’s OK! There are plenty of ways to work toward a number that makes you more confident in your financial wellness.
How are credit scores calculated?
Credit scores can be calculated using different credit scoring models. Your score will vary based on the model being used. The most recognized credit score is the FICO score (created by the Fair Isaac Corporation). VantageScore is another common model, made by the 3 major credit bureaus (Experian, Equifax, and TransUnion).
No matter which model is being used, credit scores take a variety of factors into account, including:
- Payment history: A long history of on-time loan and credit card payments will help you get a better score. If you miss a payment, you can expect your score to take a hit.
- Credit utilization: This is how much of your available credit is being used. A high utilization, or heavy credit usage, can signal to borrowers that you might be overstretched and unable to repay what you’ve currently borrowed.
- Length of credit history: Future lenders like to see that you’ve had a history of making on-time payments. The longer your history, the better.
- Credit Inquiries: Each time a potential creditor checks your credit history (a “hard” inquiry), your score will drop a few points. Don’t worry, it will recover. But you’ll want to avoid applying for too many things at once and having too many hard inquiries on your account.
- Types of credit: Having more than one type of credit can help boost your score over the long term. When you’re just getting started, you may just have one type of credit, but eventually, that will likely grow.
Keeping these factors in mind can help you build, repair, and maintain your credit score for years to come.
Now that you know what’s important for a good credit score, it’s time to start building it! Here are 5 tips you can work into the beginning of your credit journey.
1. Become an Authorized User
An easy way to start building your credit is to become an authorized user on someone else’s credit card. If you have a family member or partner who is willing to add you to their card as an authorized user, you’ll get their credit history added to yours.
Make sure this person is trustworthy with a solid credit history. You’ll get your own credit card on the account and be able to make charges. But, you’ll also be responsible for missed or late payments and other credit issues if they arise.
2. Get a Credit Card
A great way to start building credit is by signing up for a new credit card. In the beginning, your options might be limited. However, there are a lot of cards out there designed with people like you in mind — they’re ready to help you start from scratch.
Some options to consider when you’re just getting started include:
- A secured card: With a secured credit card, you’re required to make a deposit that is held as collateral. For example, for a secured credit card with a $500 limit, you’d need to make a $500 deposit before using the secured card. That way, if you’re unable to pay your outstanding balance, the credit card company can keep that deposit.
- Chime Credit Builder: Chime’s Credit Builder card is a no fee, 0% APR (annual percentage rate) secured credit card that helps you build your credit. Each month, Chime reports payments to the major credit bureaus. That means everyday purchases like gas, groceries, bills, and subscriptions can all count towards your credit score.
- Co-sign: If you have someone who is willing to co-sign on a credit card with you, that can help you get approved without having credit yourself. When someone co-signs a credit card with you, you are the primary cardholder. But, the cosigner shares responsibilities, and missed payments could cause their credit score to drop too.
Weigh your options and think about what credit card choice makes the most sense to you.
3. Make On-time Payments
Your payment history plays a big role in your credit score. That’s why it’s important to get in the habit of making on-time payments, and aim to pay your balance off in full each month.
With credit cards, utility bills and other charges, look into automatic bill pay. This can help you avoid forgetting a payment and sometimes can get you a better interest rate.
Note: Interest charges and fees on a credit card can add up quickly, so if you miss payments you might not only hurt your credit score, but you could also find yourself paying a lot in fees.
4. Get Credit for the Bills You Pay
You probably already pay bills — like for your phone or various utilities. Unfortunately, you’re probably not getting credit for making those payments on your credit report.
With Experian Boost, you can get credit on your credit report for paying these bills. That means you can help build your credit history just by doing what you normally do. Not all lenders will use credit score information that includes data from Experian Boost, though, so you’ll want to make sure you take the other steps included in this article, too.
5. Check Your Credit Report
Because your credit report is so important to your financial health, you’ll want to make sure that it only includes accurate information. That’s why it’s important to regularly check the details listed in your credit history and make sure there are no errors. If there are errors, you’ll need to dispute them so they don’t affect your credit score.
It’s also motivating to check your credit score and watch all your hard work pay off! Give yourself a pat on the back each time you get a credit score update and see your number climb. You can check your credit report for free once each year using AnnualCreditReport.com.
6. Weigh the Pros and Cons of Opening New Accounts
While opening up new accounts can help grow your credit history, it can also cause your credit score to fluctuate. It’s recommended you don’t open new credit accounts too quickly. Opening up multiple accounts can lower your average account age. This can have a large impact on your credit score, causing it to drop.
It’s natural for your credit score to fluctuate as you open and close new credit accounts. However, you should be aware of too many changes in a short period of time. Weigh the pros and cons of taking on more debt and consider the impact it will have on your credit-building goals.
Starting Your Credit Journey FAQs
Looking to learn more about how to start your credit journey? Check out some common questions below.
What does your credit score start at?
Your credit score doesn’t start at 0. The lowest it can start at is 300. Your credit is non-existent until a lender, card issuer, or other financial institution checks your credit. It’s rare that your credit will be at a 300 to start, unless you’ve been practicing bad credit habits from the beginning.
Can I start my credit over?
You cannot restart your credit. However, you can take steps to rebuild your credit. Though it takes time, it will pay off to practice good credit-building habits.
How do I establish credit with no credit?
To start your credit journey, there are a few steps you can take. Consider getting a secured credit card, look into Chime Credit Builder, or become an authorized user on some else’s credit card. Then, make payments on-time, pay off as much as you can, and practice other health money habits to maintain good credit.
Starting Your Credit Journey: Final Thoughts
Long story short — starting your credit journey may seem daunting, but there are many strategies you can use to work in your favor. The most important thing is to be patient. Boosting your credit score takes time. With time, patience, and good habits, you’re sure to have a positive credit journey ahead.