There are two main complaints when it comes to credit. Either it’s bad or you can’t get any.
How are you supposed to build your credit score up and be responsible if no one will give you a chance? This article focuses on how to build credit, even when it seems like the only word you’re hearing is “no.”
Don’t give up. You need good credit to do just about anything financial in adulthood, from buying a car to passing background checks (if the employer cares).
Learn where to start on your credit journey and how to build credit below.
How to Build Credit if You’re Under 21
Once you turn eighteen you can expect to get credit card offers and applications in the mail all the time. And in your email. And see ads for them on Facebook.
The options to apply for credit cards are just about everywhere. Maybe you tried to apply for a few, but they all said no. First of all, don’t panic about the rejections.
Having no credit and getting a rejection for that reason can’t hurt your non-existent credit card score. But that’s only true when you don’t have credit.
In the future, know that rejections from credit applications will bring your score down a few points.
How to Build Credit By Becoming an Authorized User
A good amount of children have access to a family credit card for emergencies or to use when their parent asks them to pick up something on the way home from school.
Before you were eighteen, this may have been a card with your parent’s name on it.
But once you’re eighteen, you can make this process more official by becoming an authorized user. That means you get a credit card linked to the same account you were using, except your card has your name on it.
You should still only use it in the way you’d use your parent’s money before–carefully and with communication. As you charge things on the card that’s under your name, you’re building credit.
That is, as long as that card reports activity by authorized users to the credit bureaus. Most do, but it’s worth asking your card provider so you don’t go through this effort for anything.
This is only a good choice if your parents have a good credit history. If they have bad credit and overspend on their cards, that’s not the kind of credit you want behind your name.
Talk to your parent or guardian about becoming an authorized user. Some cards even have specials where they’ll give you extra points or a bonus when you add someone to the account.
It’s worth giving it a look.
Get a Secured Credit Card
The biggest risk credit card companies take when lending to someone with a credit score is the uncertainty of how you’ll treat the money. Are you going to overspend and then not be able to pay it back?
Or will you be responsible? It’s a toss-up to them and they see it as more of a 50/50 chance of them losing money.
But they could make money, and that’s what they want. So they offer what are called “secured credit cards” to make sure they won’t end up in the red (when it comes to your account at least).
When you apply for a secured card, you have to put something on the line – something with a good amount of value that you’re agreeing to give up if you can’t make payments.
So you could open a secured credit card by signing your car over, in theory. If you’re a responsible card owner, nothing will ever happen to your car. But if you end up going broke or bankrupt, the card company has the right to seize your car (or another asset) as a form of repayment.
Sounds a little nerve-racking, right? It can be, so that’s not the route most young people choose.
Authorized cards and our next idea are much more common.
Get a Credit Building Loan
Our final solution sounds a little counter-intuitive. It’s a loan that you take out not because you need the money, but because you want to show that you can pay it back.
Yes, it’s very roundabout, but if you can’t become an authorized user or you don’t want to have a secured card, it can work.
You’ll have to find someone that offers personal loans no credit check or no credit history lending. It’s getting more common these days, so this may be the easiest independent option.
But it’s risky. You’re taking out money and that can be very tempting. If you don’t pay the loan back on time or in the correct amounts, you’ll still build credit – but not the kind you want.
Bad credit can take up to a decade to rebuild. That’s a long time! So make sure you really understand the terms of your loan and have a repayment plan.
How to Choose
Now that you know your options, the one that was most reasonable for you should have stood out. If you have parents or guardians you can run your ideas by, that’s a good idea too.
It also doesn’t hurt to go to a bank and apply in person, so the employee can talk you through the details of the card, one on one.
So what’s the #1 way how to build credit? Patience and perseverance, like everything else in life.
Want to learn why choosing the right credit company is important? Just take a look at what’s going on in Iran.