Even though you may not fully understand what it is, you know your credit score is important. It’s used by lenders, employers, and others to assess how you manage your financial responsibilities. But if you’re just getting started, how do you establish credit?
There are a few ways to get started on a credit history, including:
1. Become an authorized user on someone’s credit card account.
This means the account holder is authorizing you to use their card – you’ll receive a card in your name, and the account will likely start to appear on your credit report. If the account holder has a strong credit history, becoming an authorized user can be a great start to establishing your own credit. However, the opposite is also true – if the account holder makes late payments or goes over the card’s limit, this will also show up as a negative on your credit report. It’s important to consider the potential negative consequences before becoming an authorized user.
2. Apply for a secured credit card.
You make a deposit to be used as collateral that guarantees the credit you’re being given. Your credit limit is generally the same as the amount of your deposit. You use a secured card just like a standard credit card – you’ll receive a bill for any items you’ve charged, which you’ll be expected to pay in full (or make payments). If you make payments, you’ll be charged interest on your balance.
Secured cards aren’t meant to be used forever. Use it responsibly, and when your credit score is high enough, you’ll qualify for a standard credit card or bank loan. (Talk to your personal banker about those requirements.)
3. Apply for a loan with a co-signer.
A co-signer guarantees they will pay off your loan if you are unable to do so. The better your co-signer’s credit history, the lower your interest rate is likely to be.
4. Talk to your banker.
They’re a great resource for information about establishing your credit.
Additional Resources:
Credit Reports and Credit Scores (FDIC)
How Money Smart Are You? Resources
Consumer Financial Protection Bureau (CFPB)
The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.
