It's like the "Chicken or the Egg" dilemma—if you don’t have a credit history, it’s hard to get a credit card or loan. But if you aren’t allowed to borrow money, how can you prove yourself and establish credit? It takes time to build credit, especially when you’re just starting out, but it can be done.
Your credit score tells people how responsible you are in terms of managing your money. Good credit can help you rent an apartment, pay less for car insurance, qualify for a car loan… it can even help you get a great job. And when you do qualify for credit cards and loans, your good credit will help you get better interest rates and terms.
Your overall credit is measured by several factors; the two most important are how much credit you use and how well you pay your bills. Other considerations include how long you’ve had credit, how you handle different types of credit, and your history of applying for credit. You need three to six months of credit activity before the credit bureaus can calculate an initial FICO credit score for you.
While it sounds crazy, you must build credit by getting credit. This can be tough when you’re just starting out, but here are four easy ways to begin:
It seems counterintuitive but the more credit you have and the less credit you use, the better your credit score will be. Be patient and persistent. Young borrowers will earn good credit score over time so it’s smart to build good credit before you need it.
Once it is available to you, use the credit you have but pay your bills on time and pay off your credit card balances each month. Don’t apply for too many new accounts at once; too many inquiries will lower your credit score. Monitor your card activity and check your credit report for errors each year using AnnualCreditReport.com.
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