Your credit impacts nearly every aspect of your financial life, from loan eligibility to the interest rates you pay. It makes sense to want to strengthen your credit score by building a stable credit history. Fortunately, there are numerous ways to do so.
Check out our three tips on how to build your credit history, even if your credit is poor or nonexistent.
1. Open New Credit Accounts
It's the ultimate catch-22: You can't obtain credit unless you have a credit history. How are you supposed to demonstrate your financial responsibility with credit cards and loans if you're ineligible to receive them?
Don't worry - there are workarounds. First, instead of opening your own credit card, become an authorized user on someone else's. A parent or guardian can make you an authorized user on their credit card account, helping you establish credit of your own while benefiting from their credit history.
There are also specialized credit cards to consider, such as student credit cards. These are designed for individuals with no credit and can be obtained with a cosigner or by showing proof of income.
Additionally, even if you don't yet qualify for a mortgage or car loan, odds are you've taken out a student loan to help pay for college. Paying back your loan on time will help you build credit history.
2. Demonstrate Financial Responsibility
Opening a credit account is only half the battle. It's just as vital to ensure you use your accounts responsibly to build credit history. This means:
- Making payments on time.
- Eliminating unnecessary credit balances.
- Not using too much credit at once.
- Avoiding damaging credit report marks.
- Clearing up errors on your credit reports.
- Not opening new credit accounts too quickly.
- Protecting against identity theft.
- Using a mix of different types of credit.
- Not closing old credit accounts unnecessarily.
3. Seek Out Alternative Options
It's easy to get hung up on "traditional" credit reports, which base your credit score on limited information. However, alternative credit options exist.
Alternative credit reports use recurring bills, such as rent, internet, phone, insurance and utility to create a financial profile. By linking an alternative credit agency account with these bills, you can obtain a free alternative credit report and score. This will increase your chances of qualifying for credit opportunities in the future, such as loans.
Figuring out how to build your credit history doesn't have to be hard. In fact, it can be as easy as one, two, three.