Establishing Credit

Like it or not, if you want do this adulting thing right then you’ll need two things: a professional wardrobe and credit. But when you get to the magical world of adulthood, you’re faced with a frustrating catch-22. You can’t get a credit card or loan without credit history, but you can’t build credit without a credit card or a loan.

Tricky, right?

Luckily, there are ways to break this cycle and build up your credit while you’re young. If you can maintain some self-control on your spending and you pay your bills on time, then you can rack up a credit score that will assure that future loans for a house or car won’t be a problem.

Here’s 3 options to get your credit history off the ground and running. Let’s start to build credit!

1. Starter Credit Cards

While most major credit card companies require some credit history before handing you that plastic, you can use starter cards as a foundation for building your credit. Try to avoid maxing out your credit limit, as credit bureaus prefer that you stay below 30% of your limit.

Also, for all of the following, make sure that your credit card is reported to the credit bureaus so you get credit for your efforts (no pun intended).

Secured Credit Cards

Secured credit cards are available to almost everyone and have a low level of risk to both the borrower and the issuer. First, you make an upfront cash deposit to secure the card. This is used to pay off your card if you fail to make payments. Aside from that, it functions much like an ordinary credit card. You can use your card to make purchases, then you’re expected to pay by the due date each month. If the balance isn’t paid in full, then the leftover balance incurs interest charges. Once you close the account, your cash deposit is returned to you. To best build your credit, make sure that you make payments on time and, if possible, pay the balance in full each month.

Student Credit Cards

When you turn 18, you’ll likely find yourself inundated with credit card offers of differing quality. Student credit cards are a good option for those starting out in the credit game because they have low credit limits, which prevents you from getting in over your head with debt. One caution is that these cards generally hold higher interest rates, so you’ll be better off paying your balance in full each month if you can.

Retail Credit Cards

Virtually every big retailer offers their own credit cards that usually have low credit limits and bonus deals on merchandise. These cards are easy to get and can be a great way to save from stores that you regularly patronize. Like student cards, retail credit cards have higher than average interest rates. Keep an eye on your spending and try to pay your full balance each month.

2. Credit Builder Loans

Credit builder loans are another great way to build credit without incurring much risk. Despite the word loan, a credit builder loan has more common with putting an item on layaway, but with interest charges thrown in. Vantage West offers a Share-Secured Loan, where your share account works to secure the loan. We place your money on-hold until you pay off your loan. You’ll pay either a fixed or variable rate of interest as you make payments each month. There’s no annual or application fee and lending starts at $500.

Learn more about applying for a Share-Secured Loan through Vantage West

3. Cosigners

If you’re young and need a car, it’s nearly impossible to get a loan without credit history. The credit card route takes a few years to establish a decent credit history, so you’ll need an additional path. Often, the best option is to find a family member with good credit who’s willing to cosign for a loan.

Basically, your cosigner puts their name on the line to guarantee that you’ll pay the loan back. Since the cosigner has a good credit history, banks allow you to borrow money for a car or another high-level purchase. But beware that if you don’t make your payments, then the cosigner is on the hook to pay the rest of your loan.

Learning to build credit is one of the first milestones upon entering the adult world. If you keep track of your payment schedule and budget your income carefully, you’ll have no problem developing good credit. Consider having your payments automatically debited each month to avoid late fees and dings to your credit score. It can be difficult to dig yourself out of a debt hole, so establish good habits early on.

If you’re interested in learning tips to manage your first credit card, read on.

Also check out our Life Hacks from a Digital Guru. 

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