The question I always get from people with regards to credit is: “How do I build credit? I can’t get approved for anything.” It probably feels like an endless cycle. You can’t have credit unless you get a loan, but you won’t get a loan unless you have credit. A lot of younger adults struggle with the first step of establishing credit, so here are 3 Tricks to Begin Building Credit:
1. Secured Credit Card
It’s a risk for banks to give consumers credit cards primarily because they are unsecured. If you default on the balance owed, the bank is out the money (there’s no car to repossess or home to foreclose on). Because of this risk and lack of recourse, credit cards are difficult to obtain if you have ZERO CREDIT. With a secured credit card, you take away this risk for the bank by securing funds in a savings account. You simply lock up $300 into the account (no touchy) and you’re given a line of credit of $300 (sometimes the bank may require a higher security deposit). Use it to make a few small purchases each month and BAM! you’ve now established a tradeline. One thing to be careful of here is this: let’s say you have a $200 balance and $300 on hold in the savings. If you wish to close the card, common sense would say “use the dough in the savings to pay off the balance.” Unfortunately banks don’t use common sense. You must bring the balance to zero before the hold can be released.
2. Co-sign
I understand that a lot of young adults are trying to “cut the cord” from their parents. With all due respect, your parents can be a big asset to you. If you don’t meet the minimum requirements for obtaining a loan or credit card, try adding your parent to the application. I have a credit card joint with my father which I received when I was 16. By the time others were starting out, I had many years under my belt.
3. Store Credit Card
This is a rather convenient choice. How many times have you been to a Big Box Retailer and while checking out they ask: “how would you like to save X amount of dollars on this purchase?” Most of the time we’re programmed to say No and kindly decline, but maybe you should give it some consideration. Next time you are trying to make a major purchase (computer, tv, etc.) try financing it. Most of the time these retailers report to the credit bureaus.
