Establishing good credit is an important step toward achieving financial independence. However, for millennials and Gen Zers who are just starting out, building credit can seem daunting. Here are eight tips on how to build credit from scratch and set yourself up for a healthy financial future.
- Open a Credit Card Account: One of the easiest ways to start building credit is by opening a credit card account. Look for a credit card designed for people with little or no credit history. Make sure to use the card responsibly by making small purchases and paying off the balance in full each month.
- Become an Authorized User: Another option is to become an authorized user on someone else’s credit card account. This can be a parent, relative, or friend. Make sure to choose someone with good credit and a history of responsible credit card use.
- Apply for a Secured Credit Card: A secured credit card requires a security deposit that serves as collateral. This can be a good option for those who are unable to qualify for a traditional credit card. Make sure to choose a secured credit card that reports to the credit bureaus.
- Pay Bills on Time: Payment history is the biggest factor in determining credit scores. Make sure to pay all bills on time, including rent, utilities, and other recurring expenses.
- Monitor Your Credit Score: Keep track of your credit score by checking your credit report regularly. You are entitled to a free credit report every 12 months from each of the three major credit bureaus. Go to AnnualCreditReport.com to request your free credit report.
- Keep Your Credit Utilization Low: Credit utilization refers to the amount of credit you are using compared to your credit limit. Keep your credit utilization low by using your credit card to purchase what you were going to pay for with cash.
- Avoid Applying for Too Much Credit at Once: Each time you apply for credit, it can result in a hard inquiry on your credit report. Too many hard inquiries can negatively impact your credit score. Only apply for credit when you need it.
- Build a Solid Credit History: Building a solid credit history takes time. Make sure to use credit responsibly and avoid any negative marks on your credit report.
Building credit from scratch can be a challenge, but it is an important step toward achieving financial independence. Follow these tips to start building your credit today and set yourself up for a healthy financial future.