If you have little or no credit history, you can begin building a positive record by getting a secured credit card, becoming an authorized user for an existing cardholder's account, or finding a co-signer for a credit account. Other types of loans, such as auto loans, also can help you establish credit. Make sure the lender reports the card or loan to the major credit bureaus, Equifax, Experian and TransUnion. In any case, you must manage the credit you receive responsibly because late payments will harm your record. Start with one credit card, charge small amounts and pay off the balance every month for the best results, the myFICO website recommends.
Get a Secured Credit Card
Some banks offer secured credit cards to customers who open an account and agree to keep a specific sum on deposit to guarantee the credit line. To qualify, you typically must open a savings or certificate account with between $300 and $5,000, depending on the issuing bank. Then apply for a secured card at the same institution. The funds you deposited become the security for the credit line. For example, if you deposit $1,000 in a savings account, you may qualify for a card with a credit limit of $1,000. The interest rates and terms vary, so it pays to shop around.
Become an Authorized User
Another way of starting a credit history is to become an authorized user on an existing card belonging to someone else -- typically a relative with established credit. When you become an authorized user, you can make charges, but you aren't legally responsible for the debt. There's no need to qualify with the bank -- the main account holder simply agrees to add you. Some card issuers report an authorized user to the credit bureaus as it would the primary account holder, according to Credit Karma, but not all do.
Get a Student Card
If you're a student with a part-time or summer job, you may qualify for a student credit card in your own right. Some major credit card companies offer student cards. By law, you must prove that you have enough income to qualify without a co-signer if you're under age 21. Student cards typically come with a credit limit under $1,000 and higher-than-average interest rates, so shop around to get the best deal.
Find a Co-signer
If you can't tie up cash in a bank account and you don't have any income, you maybe able to get a credit card with a co-signer. You'll need to find someone with established credit who is willing to take the risk -- usually a relative. Even if you're the one making the charges, both you and the co-signer are responsible for the debt. Late payments or a default can harm your own credit and your co-signer's. Not all banks allow co-signers on credit cards, but some major ones do, including Bank of America, Discover and Wells Fargo.
Get an Auto Loan
Auto loans can be tough to get without good credit. If you have some credit history -- for example, through a credit card -- you may be able to get a bank or credit union loan. If not, a loan through the dealer can be easier to get, Kiplinger reports. If you still can't qualify, you can ask a relative to co-sign. Alternately, ask your relative to be the primary borrower, with you as co-signer. Once approved for a co-signed loan, you can build positive credit if you make timely payments. Typically, banks report these loans to the credit bureaus for both the parties as installment loans, according to Experian.
Use Your Student Loans
You can use your student loans to build credit once you start repayment. According to U.S. News & World Report, they appear as installment loans on your credit reports, and paying them on-time is one of the best ways for new graduates to establish credit. Don't take your student loans lightly, because defaulting will do serious damage to your credit.
If you can't make your student loan payments, get a deferment. A deferment won't hurt your credit.
Experian has additional tips for building positive credit. In addition to always paying on time:
- Keep your credit card balances low.
- Don't open more accounts than you need. Having too many credit inquiries can ding your credit.
- Don't try to improve your credit by closing accounts. Closing accounts increases your ratio of debt to available credit and harms your credit rating.
- Don't try to move debt from one credit card to another. Pay it off instead.
- Bankrate: Getting Your Student a Credit Card
- Kiplinger: Build Your Credit Record as a Young Adult
- myFICO: How Do I Go About Building My Credit History?
- Experian: Being a Co-Signer Can Help Build Your Credit
- Bankrate: How Young People Can Begin to Build Credit
- U.S. News Money: How Student Loans Affect Your Credit Score
- Bankrate: 10 Questions Before Getting a Secured Credit Card
- Nolo: Secured Credit Cards and Co-Signed Credit Cards
- Credit Karma: How Does Being an Authorized User Affect My Credit?
- Experian: Improve Your Credit History